Dublin govt admits role in economic crash

Two reports have predicted a huge contraction in the 26-County economy and surging unemployment next year as Fianna Fail admitted its mistakes have fuelled the crisis.

According to a bleak assessment by the International Monetary Fund (IMF) published yesterday, Ireland’s banks face losses of 35 billion Euro to the end of 2010, the economy will shrink by 13.5 per cent from 2008 to 2010 and unemployment will climb to 15.5 per cent next year.

It says the 26-County economy was perhaps the most overheated of all advanced economies.

The Organisation for Economic Co-operation and Development (OECD) predicted the economy will shrink by ten per cent this year. It estimated that unemployment will reach 14.8 per cent in 2010, and that the country’s gross domestic product (GDP) will contract by 14 per cent over the three years to 2010.

Speaking in the Dublin parliament, the 26-County Minister for Finance Brian Lenihan said he shared the IMF’s “broad assessment” that the Irish economy had overheated and this was contributing to the difficulties facing the country’s finances.

“We did overheat the economy, I have always accepted that and I made that clear in my last Budget speech,” Mr Lenihan said, adding he had “always acknowledged that to the extent that governments contributed to this, they must take responsibility for it.”

It was a historic “mea culpa” from Fianna Fail, a party which has never before admitted damaging the economy.

Much of the blame lies in Fianna Fail’s sustenance of the property bubble, which favoured builders and developers but turned the real estate market into a pyramid scheme. Its inevitable collapse, accelerated by the global recession, has erased tens of billions of Euro from balance sheets and left the South’s economy on life support.

However, the Dublin government continues to defy one of the main recommendations of the reports, that it introduce a property tax to restrain the property market.

The IMF report says that during the housing boom “Ireland was perhaps the most overheated of all advanced economies and suggested that Government fiscal policy “needed to be substantially more aggressive than it was”.

The carefully worded report welcomed measures to address the problems in the public finances, but warned that these efforts would have to be sustained “over an extended period of time”.

The IMF said the focus should be on spending cuts, including “sensitive” areas such as the public service wage bill. It also says social welfare programmes should be more targeted and called for a property tax.

The government has promised a new 200 annual Euro tax on second homes, holiday homes and rental properties once enabling legislation is passed next month.

But that amount -- less than 0.5% of the average rental income of a residential property in the state -- is seen as unlikely to ward off developers and property speculators, many of whom are keen Fianna Fail supporters.

Mr Lenihan said a property tax would have to be paid out of income and “I don’t believe that a property tax can be introduced that would have any substantial yield next year”.

“There aren’t any easy tax solutions so the bulk of the problem must be addressed through expenditure reductions,” he said.

But the introduction of a valuation-based property tax on most residential properties in the country was also recommended by the National Competitive Council.

Mr Thornhill said one positive feature of a property tax was that, unlike additional income tax, “it does not affect people’s incentive to work”. The Council’s proposal is that a property tax, based on the value of residential properties, would replace stamp duty.

Meanwhile, Labour’s Willie Penrose accused the government of being in denial at the extent of the unemployment problem, which he said continues to deteriorate at a rapid pace.

“There have been a number of minor initiatives announced by the government in recent weeks, but they are simply a drop in the ocean when we are facing a tidal wave of job losses,” added Mr Penrose, party spokesperson on enterprise, trade and employment.

Sinn Féin’s Arthur Morgan said if the Dublin government wasn’t so preoccupied with bailing out the banks and cutting public and social spending much could have been done by now to stem the loss of jobs.

“What is absolutely clear from today’s figures is that the Government’s priority must shift to job retention and creation immediately,” he added.

He also questioned the IMF report, which he said was “in agreement with the government’s current policies, for example the slashing of Ireland’s public finances and the government’s black hole approach to bailing out developers and bad banks.

“This report, like the IMF agenda, is a damning indictment of the low taxation - low public spend ideology of western governments that have dominated global economic decisions since the 1980s.

“The government needs to deliver an economic stimulus package that includes a properly funded job retention and creation strategy as well as real investment in infrastructure and public services.

“Saddling future generations with unprecedented debt and undermining Ireland’s social and economic future is not a recovery plan, it’s a perpetuation of bad policy and inept decision making.”

Urgent Appeal