A fifteen euro per week increase in social welfare payments is being mooted, per the Independent, as the centrepiece of the Government’s forthcoming budget. Not only that, but for those of us on the tax-paying side of the ledger, an additional third band, to put more money in our pockets. There are two things that are certain to happen, if a giveaway budget like this takes place: First, it will probably make the inflation problem worse. Second, the opposition will describe it as not enough, in any case.
Inflation is, of course, caused by too much money chasing too few goods. When you pump – using the social welfare figures as a guide – €1.1billion of extra cash into the economy, that effectively means 1.1billion more euros competing with you for your loaf of bread, or tank of petrol. More demand means higher prices. If the laws of economics apply, as they almost always do, then the relief felt by those who get their extra 15 euro will be brief.
And politically, once you give someone 15 euro a week extra, you can’t ever really take it back. The last Irish Government to cut social welfare rates substantially was Brian Cowen’s – and only then because there was no money left. Mr. Cowen was despatched to retirement not long afterwards.
Wrestling between the competing demands of economic theory and political reality is, of course, the single biggest challenge all Governments face. This Government cannot, very well, do nothing in the face of a cost of living crisis. If you sat down and explained to most people why pumping more money into the economy during an inflationary crisis is a bad idea, they would likely understand it. But even then, they would probably sooner take the money and worry about the consequences later than they would praise a Government that gave them nothing for their own good.
But just because political realities demand something, that does not make the “something” a good or wise idea.
The other problem is that politicians, by their nature, are limited in terms of their imagination. The problem that the Irish economy faces is, we are always told, a supply and logistics one: The inflation crisis is being driven by a reduction in the supply of oil and natural gas, thanks to Russia and its war. There are lingering problems, we are told, getting goods out of China because of the pandemic. But this budgetary proposal, you’ll note, does nothing to address any supply side problem: It just pours more money onto the money fire.
Wouldn’t it be better to take that cash and invest it instead in supply side solutions? We might bring gas prices down more quickly by subsidising the production of Gas off the Irish coast, for example. But of course, that’s politically impossible: Giving money to big oil instead of giving it to struggling families: Sinn Fein would have a field day. Good policy is rarely popular.
Alternatively, it could just eliminate the tax on fuels for a year, or drastically reduce it. That would reduce prices, not just for family travel, but for logistics and supply right across the economy.
But try getting that past the Greens.
We’re stuck, then, with this: A budget that will take money and throw it at the public in an attempt to buy votes and win a temporary reprieve from the political pressures being created by inflation.
So we should all just trouser the extra cash, when it comes. But don’t buy any line from the Government that this will “tackle the cost of living crisis”. It won’t: It’s shaping up to be a budget likely to make that crisis worse.