When asked how much they have for a “rainy day fund” in case they lose their job or need emergency funds, a worrying 67 percent of people admit to having less than $5,000 in savings in the latest independent Sunday poll. About one in four has none at all.
Asking someone’s opinion is one thing. Opinions can change. Asking them about their finances really gets through the undergrowth to the heart of the problem facing low and middle income families across Ireland in the current livelihood crisis. It shows how close many are to the brink, especially as the Economic and Social Research Institute (ESRI) forecasts that 43 percent of us will soon be living in “fuel poverty”.
And winter hasn’t even started yet.
The recent huge surge in electricity and gas prices, as announced by the state’s largest energy retailer Electric Ireland on Thursday, only reinforces the feeling that things are falling apart.
But has the government really “understood” what is happening? That TDs are set to receive a pay rise from €6,500 to almost €108,000 per year under the government-negotiated collective bargaining agreement for the public sector does not suggest this. That wage increase is more than enough to cover the rise in energy costs at least this winter – and more than the majority of their constituents have in savings to cushion the impact of the crisis.
If ever there was an illustration of politicians not living in the same world as their constituents, this is it. No wonder this survey also found that 78 percent of respondents say, “TDs are out of touch with the concerns of ordinary people.”
This will inevitably affect how they view the current crisis. Almost eight out of ten respondents expect the economy to slide into recession in the coming year.
But while acknowledging that the coming months “might feel like a recession,” Tánaiste Leo Varadkar said last month at an event that heralded record inward investment that “the jobs and revenue generated by multinationals have helped… to avoid a recession during the pandemic and are now giving us the financial firepower to avoid a crisis and a double-dip recession.”
Is that confidence or complacency?
Rating agency Fitch warned last week that a complete shutdown of gas supplies from Russia this winter “is increasingly looking like a reasonable assumption” and that such a move would plunge the EU into recession.
But that can happen sooner than you think. Last Friday, Russia’s Gazprom announced that its Nord Stream 1 gas supply pipeline to Germany would be closed “indefinitely” with immediate effect.
Ireland may be shielded to some extent as corporate tax returns come in much better than expected and provide a decent war chest to protect the country against economic shocks; However, it would be imprudent to assume that the country can be spared an EU-wide recession, not least when most of the money pouring into Ireland’s coffers comes from a surprisingly small number of tech and pharmaceutical giants doing a good job had pandemic.
Half of corporate income tax comes from just 10 companies. Without them the country would be in deficit.
If they were to suffer globally, it could hit an open economy like Ireland very hard. The Irish Fiscal Advisory Council (IFAC) is already warning that “Ireland’s recovery, while still strong, has lost some momentum of late”.
Still, it seems like a broader political conversation about these deeper uncertainties has barely got off the ground.
Even if the country does not technically meet official criteria for a recession in the coming months, the impact on living standards and economic confidence will still be severe. Domestic spending falls as people pull back to weather expected hard times.
Solid employment figures, growth and this record foreign investment certainly didn’t stop inflation from rising to 8.9 percent – effectively a fall of almost 9 percent in the value of wages. Is it any wonder that people are so pessimistic about the future?
There’s also not that much hope of help coming later. The government’s appetite to spend money like it’s going out of style has waned since it was the ‘one size fits all’ response to Covid during repeated economically damaging lockdowns.
Politicians everywhere suspected a quick recovery. Instead, growth was sluggish across the EU (although Ireland was much better), then came the war in Ukraine.
They won’t risk making that mistake again, not with IFAC’s warning that doing too much around the house to help families could fuel inflation. Instead, we are being told to prepare for “a sustained upward move in prices.”
This is why parties like Sinn Féin, which promise a continuation of the Covid-era spend, spend, spend approach, are doing so well in the polls. The promise to shield everyone from economic reality may seem superficial populist rhetoric, but ultimately it was the governing parties themselves – along with virtually every other government in Europe, to be fair – that promoted the mindset that money is essentially free .
They will never admit that they got it wrong, so they are in no position to take action now.
What will the government do? Even Nigel Farage concedes that there is now no alternative to “massive government handouts”, arguing that doing so would risk mass non-payment of bills and potential civil unrest.
Finance Minister Paschal Donohoe insists such measures will form “the heart” of the budget. At least the elderly and vulnerable need to be protected from the crisis.
It’s also critical to protect small and medium-sized businesses that risk hitting the wall this winter because they can’t afford the energy bills, even if they are otherwise successful businesses.
But it all depends on how much they intend to intervene.
Tinkering with the fringes of the cost-of-living crisis, cutting one or the other bill by a few hundred euros, will not do much against the tidal wave of rising prices. Unfortunately, neither is a lucky tax.
While few would defend multinationals’ profits, it would be naïve to think that any level of taxation of energy companies will solve much as wholesale gas and electricity prices continue to rise.
But Ireland is among the countries spending the least GDP to help citizens get through this crisis. Despite what more cautious economic advisers might foist on the government with its bulging war chest of tax revenues, it’s hard to think of a good reason not to spend it on directly supporting Irish families this winter.
You just don’t have the savings to face this emergency on your own.
https://www.independent.ie/opinion/comment/tds-6500-pay-rise-is-more-than-most-peoples-savings-41959468.html TDs’ $6,500 raise is more than most people’s savings