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21 August 2003 Edition

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One in three dependent on welfare payments

BY ROBBIE SMYTH

Have you noticed anything strange over the last week or so? No? Well consider the following, three reports in the last week from the Department of Finance, FAS and the Department of Social Welfare, respectively, all show that not only is the economy clearly in recession that also there is a real possibility that things could get worse.

It's official, the outlook is bleak. But where is the 'hold the workers responsible' and 'attack the consumers' line? Where is that general 'blaming the victims' mentality that flows so easily from the Fianna Fáil/Progressive Democrat coalition's ideologues?

COALITION BLEATING

It's happily absent. Why? Because Charlie McCreevy and Mary Harney are on holidays. Yes, our dynamic duo are not around to give the usual spin. It also means that without that background interference we usually endure from McCreevy and Harney, we can spend time considering the implications of the actual reports rather than responding to the usual coalition bleating.

This is particularly apt when reading the Department of Finance's annual Economic Review and Outlook. It shows an economy with serious issues but their reasoning why this is so makes fascinating reading.

But first what are the issues? Economic growth is forecast to slow to 1.5% for the year, which, when you account for inflation, means that the economy is actually shrinking. Exports are falling, unemployment growing and total employment will only grow by 11,000 this year. Tax revenue is falling and the Finance department belatedly recognise that there is a €500 million gap between tax revenue and spending.

RECORD PROFITS

So why is this happening? Well, a quick synopsis of the review reveals some absorbing insights into the economy.

First, in 2002 new growth in the economy was "largely attributable to very strong output growth in the mainly foreign-owned, less labour intensive sectors, where the returns to production largely accrue to non-residents", meaning that all the profits were sucked out of the economy and very few jobs were created here.

The outlook also tells us that growth figures for 2002 were "boosted by unusually strong multinational profits which limited implications for the rest of the economy", meaning that it was a great year for multinationals and a bad one for the Irish economy. So what about Irish firms? Well they had to endure an "unusually sharp drop in profits".

Why then is the economy underperforming? If our two ministers were here we would be left in doubt that it was jobless spongers or lazy overpaid workers but could there be other reasons for the recession?

The Finance Outlook tells us that "the poor global economic environment was the main factor weighing on economic trends" in 2002. It couldn't have been the insatiable wage demands of workers because the review clearly states that there was only "moderate growth in disposable incomes". It also shows private sector employment at a standstill in 2002, with only public sector employment growing, driven by Fianna Fáil's pre-election spending spree.

COST OF THE EURO

Another cause of recession here is that the rising value of the euro has added nearly 8% extra costs on exporters to non-euro states. The review also notes that these costs are being borne by firms in the more traditional, labour intensive industries. So it could be argued that euro membership is costing us jobs, heresy to the ears of the missing ministers.

The outlook for 2003 is not good either. Our economy is dependent on a global recovery and there is little prospect of that happening. Irish consumers are spending less at home because of lower incomes and uncertainties about employment.

Internationally, competition is putting downward pressure on the prices of goods and services being exported, meaning that even if we export more we won't create more jobs and will get little extra value to the economy for the increased exports. There is also the problem that "international competition for jobs and investment is becoming more intense all the time".

14,000 MANUFACTURING JOBS LOST

So at least we know what some of the problems affecting the economy are. Last week's FÁS report gave an even direr picture. It warned that the weekly loss of 500 jobs is only the beginning of a much more long-term trend. The report says that employers are no longer concerned about labour shortages and that many are cutting back overtime in a "wait and see" tactic. If demand does not pick up, there will be more job losses in these firms.

Like the Department of Finance, FÁS points some of the blame at the rising value of the euro against sterling and the dollar. FÁS believes that now there is a cap on further public sector employment in 2003, unemployment will grow significantly.

The FAS report also details the scope of the jobs lost already this year. 14,000 jobs were lost in manufacturing and agriculture fell by 14,000 in the first three months of 2003, with 8,400 jobs going from the electrical manufacturing sector.

30% RISE IN UNEMPLOYMENT COSTS

The other aspect of the job losses is the increasing number signing on. This week the Department of Social Welfare published its Statistical Report on Social Welfare Service. It too makes interesting reading. 938,999 people were in receipt of weekly social welfare payments at the end of 2002. In total, when you include children and other dependents, there were 1.5 million beneficiaries of social welfare in the 26 Counties, or one in three of the population. Spending on unemployment payments increased by 30% on 2002.

This amounted to the government spending over €9.52 billion in 2002, accounting for just 9% of the economic wealth created in the economy during the same year. This cuts to the nub of the problem in these three reports.

The economy is in a crisis, perhaps not as bad as that endured in the 1980s or early 1990s but one which is deepening and to which no forecaster can see an end. Some international companies had a record year in the Irish economy and simply pocketed the proceeds. Tax revenue is falling rapidly, leaving less money to pay for basic services, while the highest income earners are paying little or no tax.

The final outcome of this is that we expect one third of the population, the least well off, the most marginalised in society to live on less than 10% of the wealth created in the economy over the same time period.

The most important lesson to take from this week is that we haven't missed Charlie McCreevy or Mary Harney. We don't need them. They too are part of the problem. Two years ago it was revealed that McCreevy and Harney spent their holidays in the villa of a multi-millionaire Irish businessman. I wonder where they are this year.

Please Charlie, don't come back, really glad you're not here.

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