Sir, – Donal McGrath (August 23rd) takes me to task for giving a misleading impression of the effects of austerity on income distribution in Ireland, and in particular of downplaying the plight of the poorest 10 per cent.
The ESRI paper on which he and I both rely makes it quite clear that the overall changes in income distribution come from two sources – Government policy, principally in the form of changes in taxes and transfer spending; and the impact of the severe recession, particularly in the form of job losses.
The impact of budgets was admittedly relatively severe on the bottom 10 per cent, but the overall story is a bit more complex.
The ESRI paper states: “The most negative impact was on the highest income decile (a loss of over 15 per cent), with the next highest impact on the bottom income decile (a loss of over 12 per cent)”. They go on to say that most of the groups in between lost between 10 and 11 per cent.
In terms of the impact of the recession, the ESRI paper makes it quite clear that the bottom 10 per cent are not the same people from year to year. Some are newcomers to the group, often through loss of a job. In all years, those who moved down (newcomers) experienced falls in real income of at least 45 per cent, whereas those who remained (persistently in the poorest group) had real income increases of between 1 per cent and 10 per cent. Also the pattern of losses in real income after housing costs is an almost inevitable consequence of the bursting of a housing bubble.
So overall the impact of the recession seems to have dwarfed any regressive or “austerity” policies.
As for Mr McGrath’s reference to the €64 billion paid to private banks, most estimates put the net cost at about €40 billion, and while there is a contentious element in this (payment to bondholders of Anglo and Irish Nationwide) does anyone seriously think that allowing the main banks to collapse for want of adequate capitalisation would do anyone any good? And by the way, the owners of these banks (the shareholders) were wiped out.
Finally the much-praised Nordic countries have little to do with the argument. They have had their banking crises and bailouts too. The Irish tax and transfer system reduces income inequality more than in most countries, the main problem being the very high inequality of direct incomes (pre-tax and transfers). But that is a structural issue quite distinct from the recent recession. – Yours, etc,
JOHN SHEEHAN,
Rathfarnham,
Dublin 14.
Sir, – A wonderfully simple cartoon from some years back says it all. It shows an economist who, having shot an arrow into the trunk of a tree, is now drawing concentric rings round it. – Yours, etc,
BRENDAN CASSERLY,
Bishopstown,
Cork.