Budget will do little to get shoppers back spending

Cutting up to €4bn in spending from an economy that is mired in recession is not the healthiest action for any finance minister to be taking. But, as countless commentators have said, Brian Lenihan has little choice in the matter because the banking and economic crisis cruelly exposed that spending for the best part of the decade had got out of hand. Like other European Union countries, Lenihan and future finance ministers face a deadline to get their finances back into order by 2014. The Government will be hoping that, because it started earlier, its economy will be on a much sounder footing than that of Britain by then. Surprisingly, less focus has fallen on what effect the budget will have on the real economy - and unemployment, in particular. The jobless rate at the end of last month stood at 12.5 per cent, almost three times higher than the rate two years ago. Including the 73,630 people working part-time, there were 413,505 people signing on the monthly live register. Even though the construction and retail industries continue to shake out staff, the rise in the unemployment rate has slowed dramatically. It was feared at one time that the jobless rate could peak at about 18 per cent, a disastrous level last seen in the 1980s. Now, the labour market economists believe the jobless peak will be reached next year, at 14 per cent. The budget will, however, give little comfort to the thousands who have lost their jobs. The Government has taken out another huge chunk of spending capital spending next year. There are only one or two major new road schemes scheduled to begin next year. Potential big construction digs, such as the Dublin North Metro, are once again aspirational initiatives that will be put on an increasingly long finger. There is also the huge problem of under-employment and the hidden levels of unemployment. The young go back to college or extend their education because they know they have little chance of securing employment. There are 3,785 people who were working in temporary jobs and who are not included in the monthly live register. Then there are the 21,894 people on full-time Fás training courses and 8,386 in community employment schemes. This all adds up to a lot of people who are not in employment but would love to be working. A punishing budget also offers little hope that people will go out and spend. The revenue the Government collects in Value Added Taxes (VAT) is published every month. They show it took in only €10.3bn in VAT in the 11 months to the end of November, a massive drop of €3.7bn in two years. Putting some sort of perspective on the fevered coverage of the cross-border shopping debate, the Central Statistics Office (CSO) survey on cross-border shopping published last week would suggest that, of that €3.7bn, the Government has lost a relatively small €200m in two years from VAT receipts from shoppers going North to pay less for their groceries in Newry and other Northern shopping towns. In the last two years as unemployment soared and bonuses were cut, income tax revenues dropped €1.5bn to €11bn, while excise duties, at €4bn, brought in about €1bn less than in November 2007. Revenues were falling at time when the Government was already spending too much on public sector pay and pensions, and when the demands on spending from the social welfare bill were climbing. That's all added up to a €22bn hole in the Government finances for the year to the end of November. Designed to stop this hole from getting much bigger next year, the budget will, however, do little to boost consumer spending - and the revenues the Government could expect to harvest from any signs of recovery next year. At the start of the year, the CSO figures showed that the volume of retail sales, excluding price discounts, tumbled by a record 26.5 per cent in a year. Shoppers were buying a quarter less of almost everything. By September, one-third fewer cars were sold than a year earlier. Sales of hardware and paints dropped 17 per cent and furniture and lighting in volume by almost 13 per cent. Measured in euro, shoppers were spending over 30 per cent less on some of these items. The annual drop in retail sales volumes later eased to 10 per cent but still showed that the Irish had become among the most cautious spenders in Europe. Unfortunately, the budget will do little to encourage shoppers to spend or bring hope that the hidden costs of unemployment will stop rising.