Fully half of people in Ireland say they are less well off than they were a year ago. 65% of people say they expect to have less disposable income six months from now than they do today.
When asked whether things will be “much better, slightly better, slightly worse, or much worse” in six month’s time compared to how they are today, 46% of people say “much worse” and 38% say “slightly worse”. Only 5% of people say much better.
Those are the main findings of the latest “consumer sentiment” study by Red C research, which was published last week. Ironically, it was published just a few days before yesterday’s report in the Irish Times which said that the Government are to have urgent meetings to decide what to do about the €65billion surplus in public finances that it expects to enjoy between now and 2026. The public may be feeling the squeeze, but the Government has so much cash it now needs urgent meetings to decide what to do with it.
The irony of course is that the Government cannot really spend its surplus to put more money in everyone’s pocket and make us all feel a little better about the country: That’s because injecting billions more cash into the economy would fuel, rather than dampening, the current inflation problem.
But at the same time, the massive surplus combined with the poor consumer sentiment produces a real and existential problem for the Government: They have money, and the public does not. Or at least, the public feels as if that is the case. One of the reasons surpluses are bad – at least in a democracy – is that they create public pressure for more spending, which in turn leads to wasteful and inefficient spending and the temptation to buy votes. The last time Ireland had money to burn, you might recall that the then Taoiseach became very invested in building a new sports stadium that was – at least in the popular imagination – going to be named after him. Politicians and lots of money is a bad combination. They’re generally at their most effective when they’re short of cash and are forced by circumstances to make good decisions rather than popular ones.
Though the red C poll on consumer sentiment is not a political poll, there are clear political implications to be drawn from it: How many people will tell you that they expect to be much worse off in six months time, and that they feel poorer than they did a year ago, and will also tell you that they think the Government is doing a great job? As Bill Clinton’s campaign manager said: It’s the economy, stupid.
And on that front things are going to get worse, because Ireland effectively has two economies. On the one hand, there’s the big multinational sector which is delivering the bumper corporate tax revenues. But the problem is that much of that cash is being earned from operations outside of Ireland, and passed through here on its way to the USA, where we take our slice. That sector does not reflect the state of the domestic economy.
On the other hand, there’s the story I wrote about yesterday, where immigration alone will cost the Irish tourist sector over a billion euros this year in lost revenue due to lost hotel rooms. Inflation is dampening domestic consumer spending. Any time when the public expect to be worse off in six months tends also to be a time when the public reduce their spending on things like eating out or new furniture: All in all, be glad if you don’t own a restaurant in Ireland this summer.
But what can be done? The answer is very little, for now. The tourist economy probably cannot be saved this year, even if the immigration policy radically shifted tomorrow: Tourist bookings have long lead ins. Public spending, as mentioned above, only risks making the problem worse. The Government and Sinn Fein’s present preoccupation with mortgage interest relief is interesting, but would actually run entirely contrary to the economic policy of the ECB: The European Central Bank wants your mortgage to soar, which is why they are increasing interest rates. The whole idea is to force you to cut back on spending in order to reduce inflation. A mortgage interest relief program would essentially amount to the Government going to war with the central bank with two entirely conflicting economic policies.
Ireland commemorates 50 years in the EU this month. Much of that will comprise ballyhooing and cheering and slapping on the back. But the fact is this: Our economic policy is largely set in Frankfurt, and the Government has little choice but to go along with it. The truth is that they have piles of money, and precious little that they can do with it aside from setting it aside for pensions, or paying down our debt. That’s the big cost of EU membership that nobody mentions.