ESRI REPORT:ESRI says cumulative value of adjustments is €13bn
THE RECENT Budget was not the most “contractionary” in modern times, researchers from the Economic and Social Research Institute (ERSI) said yesterday.
The economists also said that while the Budget was “clearly regressive”, taken together with the 2009 budgets, the burden of the fiscal adjustment involved has fallen mostly on higher earners.
The cumulative value of the adjustments announced to date is €13 billion.
Speaking at the publication of the institute's latest Quarterly Economic Commentary, Dr Alan Barrett said that, on a macro-economic level, it was "remarkable" what had been achieved.
However, he said that some of the “micro” aspects of the Budget were open to question. He singled out the exclusion of all public sector pensions, regardless of the wealth and incomes of those receiving them, from cuts.
The commentary said the car scrappage scheme was open to criticism as it may simply cause people to spend on cars money they would have spent anyway on something else.
“Such schemes have been employed elsewhere but typically in countries where cars are produced,” the commentary added.
The economists measured the macro-economic effects of the budgets since 1976, rating them in terms of percentage of Gross National Product. They found that the budget introduced by minister for finance Richie Ryan in 1976 scored minus 5.6 per cent.
The Ray MacSharry budgets of 1988 and 1989 scored minus 3.4 and minus 3.3 per cent respectively, whereas the 2009 and 2010 budgets scored minus 2.5 and minus 1.5 per cent respectively.
The relatively low scores for the recent budgets, despite the scale of the tax increases and cuts involved, is explained by the fact that prices and wages are falling. A 2 per cent cut in, for example, social welfare rates at a time when prices were falling by the same amount would lead to a neutral score.
This contrasts with a period of high inflation, when no change, or even a modest increase, would be a “contractionary” measure.
In a section of the commentary written by Tim Callan, Claire Keane and John Walsh, an analysis of the most recent Budget finds that the lowest fifth of households in income terms saw their income fall by 1.5 per cent.
Four-fifths of households saw their incomes increase. Deflation meant, for example, that those on set pensions saw the value of their income increase.
However, when the cumulative effect of the 2009 and 2010 budgets were examined, the analysis found: the top fifth of households lost 6 per cent; the next fifth lost 3 per cent; the middle fifth was down about 1 per cent; the second lowest fifth gained 3 per cent; and the lowest fifth remained essentially unchanged.
“While Budget 2010 is clearly regressive, the combination of budgets 2009 and 2010 put the greatest burden of adjustment on those with highest incomes,” the authors said.
The ESRI’s Winter commentary was written by Dr Barrett, Dr Ide Kearney, Jean Goggin and Thomas Conefrey.
