The Minister for Public Expenditure and Reform has replied to a letter from UNITE’s Regional Secretary, Jimmy Kelly. Jimmy asked the Minister for the Government’s estimate of the economic and budgetary impact of the proposed cuts:
‘I would like to request the Government’s estimate of the economic and fiscal impact of the proposed €1 billion in spending cuts that are being sought. In particular, we’d like to request the impact on:
- GDP growth
- GNP growth
- Employment in the economy
- Private consumption (i.e. consumer spending)
When these are factored in, we would then like the Government’s estimate of the reduction in borrowings or the General Government Deficit.’
In Minister Howlin’s reply (Reply from Minister Howlin) he only supplied information on GDP growth.
‘Model simulation conducted using the ESRI’s HERMES model suggests that a €1 billion reduction in the public service wage bill would reduce the level of economic activity by somewhere in the region of ¼ to ½ a percentage point in the short-run.’
The Minister did not give information on GNP growth (domestic economy), employment, unemployment and consumer spending. Most importantly, he didn’t provide information on the impact on the deficit. There are two things to note about the Minister’s reply.
First, given that his Department is running simulations with the ESRI model, they would have the information regarding employment, consumer spending, etc. Further, they would have estimates of the impact on the deficit.
This begs the question – why withhold the information? What is the Minister hiding? Not only in this response to UNITE, but in a lengthy article in yesterday’s Sunday Business Post, the Minister has refused to detail that actual savings the Government will achieve in this deal. This has been the mantra of Ministers throughout the process – they need savings but won’t say what the savings under this pay-cut deal will achieve.
Second, the one piece of information the Minister provided – the impact on GDP growth – shows that the economic impact of cutting public sector pay is more negative than previous estimates. In fact, the Government is estimating that pay cuts could be two-and-a-half times more damaging than previous ESRI estimates. If so, the pay cuts will end up saving the Government very little.
And even this admission may be an under-estimate. The Minister’s new figures are based on a model. However, there is strong evidence that models have under-estimated the actual damage austerity has inflicted on the economy and people (remember the IMF’s apology about under-estimating the impact of austerity?).
These are not just mere numbers on a page. The more deflationary a measure, the more negative impact on the economy, the more tax revenue falls and the higher unemployment costs rise. Yet, the Government, while admitting that public sector pay cuts are highly deflationary:
- Refuse to reveal their estimates of impact on jobs and domestic businesses
- Refuse to reveal how much savings will the Government will actually achieve
This is despite the fact that the Government has the information.
Why is the Government running away from this issue?