Government Statement on Economy

darkman2

The Government this morning reviewed the economic and fiscal situation. After an unprecedented period, in economic terms, when Ireland caught up with, and indeed surpassed, many of its fellow European nations, it is now facing an unprecedented set of unfavourable international factors including turbulence in global financial markets, faltering economic growth in the major economies, exchange rate shifts and the sharp rise in commodity prices. These conditions are placing the Irish economy under considerable pressure.

Domestically we are also faced with a contracting construction sector which is suppressing economic growth rates and a rising cost base is eroding Ireland’s competitiveness. In addition, the slowdown has resulted in a rapid deterioration in the public finances and falling consumer confidence.

The emerging scale of the economic and fiscal and environmental challenges now facing the country require that the Government take the necessary decisions to ensure stability in the public finances, while giving firm support for those aspects of the economy which are continuing to perform strongly, and ensuring that Ireland benefits as early and as fully as possible from improved international economic conditions.

Accordingly, the Government have decided that the Minister for Finance will present his Budget for 2009 on Tuesday, 14th October. This will reflect the necessary prioritisation of expenditures in the light of expected tax revenues. As such, it will give clarity and confidence to investors and taxpayers alike, and provide a sound basis for economic recovery.

The Government are committed to giving clear leadership in the context of the strategic priorities of the Programme for Government in order to boost confidence in the underlying strength of the economy, to encourage faster development in key sectors to protect the environment and to build sustainable competitiveness in the economy as a whole.

Accordingly, the Government will prioritise those capital investments within the framework of the National Development Plan and the Programme for Government which most support those objectives.

Ministers are developing specific initiatives which would serve to advance those objectives by encouraging investment and activity and deepening Ireland’s competitiveness. Details of these initiatives will be announced in the weeks and months ahead.

The combination of fiscal and economic policy decisions will set out a comprehensive approach to ensuring that Ireland remains on course for sustainable economic and social development in the context of the long-term objectives agreed with the social partners in Towards 2016 and reflected in the Programme for Government.

The preparation of specific policy measures, the Estimates process for 2009 and the taxation measures to be included in Budget 2009 are already well advanced. They will now be accelerated and will take account of the outcome of discussions with the social partners and with other key stakeholders.

Commenting on the Government’s decision to bring forward the date of Budget 2009 from December to the 14th October 2008, the Minister for Finance, Mr Brian Lenihan, T.D. said: “When we brought forward our savings initiative last July, I pointed out that this initiative was a first step in our response to our current economic difficulties. The Government also made it clear that additional economies would be required in the event that the fiscal position deteriorated further. Over the summer, we have been implementing our savings package and monitoring the emerging economic position.

"Weaker international conditions including slower growth and the impact of the credit crisis, combined with the developments in the housing market in Ireland, are having a major impact. The public finances are under considerable pressure as a result and, based on the latest information available, a tax shortfall of at least €5 billion for 2008 is likely at this stage.

"In the Budget, I will set out steps to stabilise and restore balance to the public finances by amongst other things prioritising current and capital public expenditure to reflect the changed realities. Through sensible and balanced management of the economy, this Government has ensured that the people of Ireland enjoy living standards that are among the highest in Europe. The Government is moving to protect the gains that our country has made by ensuring responsibility in the public finances.

"Taking decisive action now is critical to our future sustainable growth. We are better placed than most economies to meet the challenges ahead with our low debt rate, our educated and young workforce, and our low tax environment for workers and business. We are also undertaking the largest public investment programme in Europe. The Government will ensure that our economy is in the best possible position to resume trend growth as soon as international conditions improve”, concluded Minister Lenihan.

...why do I get the impression things are even worse then they seem.

gurramok

Because the deficit will occur every year until this housing correction is finished and jobs are primarily created in productive sectors(preferably export orientated) instead of construction related activity and the public sector which made the economy lob sided in the last 5yrs or so.

nesf

The deficit will occur only as long as spending is maintained at present levels during the downturn. The downturn could last longer than the "correction" bear in mind if the negativity spreads and gets entrenched in the broader economy.

We're not ****ed (yet). We've a healthy low public debt, relatively low unemployment etc. Things are most certainly a lot worse than last few years but it's worth bearing in mind that that's in relative terms and last few years were very good years for the Exchequer. You've also got to remember that part of the reason for having an early Budget is to be seen as "doing something" the average punter so that they can't be accused of doing nothing during the downturn. A bubble is bursting, it will take time for the market to work it's way through this, there's not a whole lot the politicians can do to reverse it but in order to maintain a good public face they need to be seen to be trying to do "something". Also, if there is a turnaround next year, they can claim it was their early Budget that played a part, regardless of whether it did or not etc etc.

gurramok

Private debt is sky high, it maybe the highest in Europe, people cannot spend money helping consumer spending if they are in debt

Question is - Where will the upturn come from?

I don't see anything being mentioned to boost sustainable employment hence my fear that this 5bn deficit will occur every year as once the correction is over, what sector will pick up the slack to support current spending levels? (Manufacturing/service sectors are contracting as well)

Borrowing a few billion per year over a few years without a sustainable growth industry to break even the exchequer won't help.

They relied on stamp duty and CGT plus property related VAT in the boom years to boost the coffers, they need something to replace this as it will not happen again for many years and that something is sustainable industry.

If that something is not coming, trimming pubic/sector numbers/wages is the only way unless anyone have any ideas?

eamonnm79

Listening to the radio media today has been an insight in to the lobsided corporate interest news that they all spew.
At a time when we are about to be given a huge cut back budget we are told by Mary Coughlin that our minister for finance has been spending time over the weekend with the construction industry trying to think of ways to get the housing market moving again.

If this was a free market economy that many economists would like to see this would be a very short meeting.

Brian Lenihan : Lads if you want to sell these houses you will have to drop the prices! Now I know you will loose some money here but thats tough luck.
You guys have been paying to much for land for years and you got greedy.
Drop your prices!
Instead what do we get?

What we get is the building and construction lobby meeting with the government to get a handout from the tax payer! disguised as a "Stimulous Package" So they can get the market moving without having to feel the full extent of the pinch themselves.
Thats right the construction industry want a hand out when all of the rest of us are waiting to be told about higher/new taxes we are going to pay in the upcoming budget, in part, to help fund this stimulous package.

Reminds me of when Ghandi was asked the question.
What do you think of capitalism in western economies?
He said "I think it would be a good idea"

Économiste Monétaire

That's an amusing post.

eamonnm79 wrote:

Listening to the radio media today has been an insight in to the lobsided corporate interest news that they all spew.

What would you like them to discuss? Jimmy and Jane's new baby sheep? A Nick Davies disciple...

At a time when we are about to be given a huge cut back budget

There’s no evidence to sustain that there will we be a huge cutback. We’ll see on the 14th of October what they have in mind.

we are told by Mary Coughlin that our minister for finance has been spending time over the weekend with the construction industry trying to think of ways to get the housing market moving again.

And discussing the housing market is a poorly conceived plan how? It's an important sector of the economy, of course there will be discussions.

If this was a free market economy that many economists would like to see this would be a very short meeting.

There is no pure free market economy, thanks for catching up.

What we get is the building and construction lobby meeting with the government to get a handout from the tax payer! disguised as a "Stimulous Package"

Evidence? (It’s ‘stimulus’ by the way, not ‘stimulous’.)

So they can get the market moving without having to feel the full extent of the pinch themselves.

So property developers haven’t been going bankrupt? Or, are you wisely choosing your saxicolous moments.

Thats right the construction industry want a hand out when all of the rest of us are waiting to be told about higher/new taxes we are going to pay in the upcoming budget, in part, to help fund this stimulous package.

I don’t like when people take their thoughts and present them as fact (i.e. this will happen). Everything is possible, increased taxes are not certain, because of the obvious political ramifications.

Reminds me of of capitalism in western economies when Ghandi was asked the question.
What do you think?
He said "I think it would be a good idea"

Actually, that quote wasn’t solely about ‘western’ economic theory – he was asked a question on western civilisation as a whole.

nesf

gurramok wrote: »

Question is - Where will the upturn come from?

Honestly, I think it'll come from the world economy, i.e. something we can't control directly. A global slowdown, like we have at the moment, is always going to adversely affect a small open economy like ours. Equally though a booming world economy can give us a bigger boost than bigger or more closed economies.

The thing is that it's incredibly difficult for any Government to pre-judge what direction the market will be growing in and where future demand will be on anything but the shortest time scales, so cynically, there's not a whole lot any Government can do in some ways. It's a bit like this correction didn't just come out of nowhere. Take a look around the EU and you'll see multiple housing markets in quite unrelated countries all going through corrections at the moment (the predictions for Spain by the way are much grimmer than the predictions for Ireland from what I've read in the international/economic press*). Just as global problems helped tip us from boom to correction, a global upturn, which could come from anywhere, could boost our exports and start the up tick in growth numbers again. That and I think people might be expecting unrealistic things with high single digit growth being expected from this country, we were always going to slow down to mid to low single digit growth once we'd caught up on our economic "betters" which we have done essentially.


*The Economist's argument goes (and I'm paraphrasing) that Ireland still has plenty of experience and infrastructure (in terms of institutions, partnerships etc) left over from the 70's and 80's for dealing with a downturn. Spain, doesn't, they got a "free" boost off joining the Euro while not having made their economy more efficient. This historical path to a property bubble might play a very important role in deciding how well the two countries deal with a strong market correction.

eamonnm79

Amusing response from you there UCD Econ.

I do want the media to talk about the housing market on the news it but I dont want the news to sound like its an add being paid for by the construction industry.
I was just listening to the last word and Matt Cooper was making some of the same points that I was making.
I.E. Drop your prices lads!
One of his listeners accused him of being a socialist because he tried to argue that their should not be government interference in the housing market.

Nuts Huh!

Now I know that doesnt make some of my points correct but it does add some weight behind them and surely makes them a little less rediculous then your responce would suggest.

Anyway Im hoping you could help me with some info.

About these interest free loans being offered?

If I am going for a mortgage I have to declare any loans I have.

Now if I am getting this 0% loan from a builder does that not mean that the bank will reduce the amount they will loan me and thereby make such a loan less useful than imagined.

If the banks are not taking these loans into account then surely they are loosining their only recently implemented stricter lending conditions?

Id love to know the small print on these loans being given by the builders.

I can imagine that lots people will take them in order to pay prices they cannot afford. But that just means we are back to square one with lots of people over streached.

In seven years when they have to take on the extra expence of paying off this loan they will be oversqueezed again.

Lets not be nieve.
The construction industry are looking for a government bail out that will have to be paid by the government and our taxes. You say there is no evidence of this. We will see who is correct on october 14th

There needs to be a free market correction to this huge bubble. I know this will lead to people in construction loosing their jobs and more developers will go bust.

The quicker we do it the quicker we can get back to having house prices at an affordable level and the market will start again.

Économiste Monétaire

I do want the media to talk about the housing market on the news it but I dont want the news to sound like its an add being paid for by the construction industry.
I was just listening to the last word and Matt Cooper was making some of the same points that I was making.
I.E. Drop your prices lads!
One of his listeners accused him of being a socialist because he tried to argue that their should not be government interference in the housing market.

Displaying the woes on the construction sector is hardly an advertisement. Also, someone arguing against government intervention is socialist in thought? Riiight. You might want to reconsider tuning in if that’s the acumen people are displaying.

Now I know that doesnt make some of my points correct but it does add some weight behind them and surely makes them a little less rediculous then your responce would suggest.

So, because it’s something you heard on ‘the last word’ you infer that if you regurgitate here it will be taken as fact/carry weight? Your points were akin to something I read over on the politics forum – they appeared agenda driven, biased, and not fully thought out. That’s why I was amused. But, if they were simply something you heard then that's not a reflection on you, per se.

Anyway Im hoping you could help me with some info. [...] Now if I am getting this 0% loan from a builder does that not mean that the bank will reduce the amount they will loan me and thereby make such a loan less useful than imagined.[...] Id love to know the small print on these loans being given by the builders. [...]

That doesn’t really have bearing here. This isn’t a financial advice forum – try the banking forum for information on the small print pertaining to loans. The loans, as I understand, aren’t industry wide – only one firm.

In seven years when they have to take on the extra expence of paying off this loan they will be oversqueezed again.

Then people should not take out the loan if they cannot, reasonably, plan ahead. The government should not need to nanny people by saying, ‘now don’t take out that loan...’

Lets not be nieve. The construction industry are looking for a government bail out that will have to be paid by the government and our taxes. You say there is no evidence of this. We will see who is correct on october 14th

Of course I said there is no evidence to support your claim, why? Because there isn’t. It’s an assumption you’re making - not fact. It may, or may not, happen. I never mentioned my opinion on it, so saying ‘we’ll see who is correct’ is a bit odd.

There needs to be a free market correction to this huge bubble. I know this will lead to people in construction loosing their jobs and more developers will go bust.

Of course developers must feel the pain if they were willing to take the profit (and some have). One cannot reward silly behaviour, I do agree. The problem with the idea is that people will always look to the government to ‘do something’. It will only increase as neo-interventionists look to America and its new found growth, even after all that has occurred there.

The quicker we do it the quicker we can get back to having house prices at an affordable level and the market will start again.

Asset bubbles aren’t one off - freak - events. As long as the two emotions drive the market they will always occur.