Inequality and Budget 2012

Sinéad Pentony10/10/2011

Sinéad Pentony: In the run up to Budget 2012, the discourse is going to be dominated by the scale of the fiscal adjustment (€3.6 billion) and the breakdown of taxation and spending cuts. Currently, the position is that the adjustment will be made up of €2.5 billion in cuts (€2.1 billion in current and €0.4 billion in capital spending) and €1.1 billion in taxation measures. The adjustment is part of the agreement with ‘troika’ – EU/IMF/ECB. However, the breakdown of the adjustment is at the discretion of the government.

On the basis of the current breakdown of taxation measures and spending cuts, we are likely to see further cuts to social welfare as well as reductions in health and education services. If this comes to pass, the budgetary measures will have a disproportionate impact on low income groups – again. These measures are also likely to reduce aggregate demand even further, lengthen the dole queues and suck more money and confidence out of the Irish economy. So we will have growing inequality combined with a stagnant economy, with the exception of the export sector, which has the features of an ‘enclave economy’. And even the export sector is also under threat with the uncertainties that exists across the global economy.

Income inequality has been shown by the IMF to be one of the major contributing factors to the onset of the crisis. More recently, Stiglitz has said that “to understand what needs to be done, we have to understand the economy’s problems before the crisis hit”. He identifies a number of problems including the fact that “shifting income from those who would spend it, to those who won’t, lowers aggregate demand”. He also identifies the need for the “structural transformation of the advanced economies, implied by the need to move labour out of traditional manufacturing branches”, but notes that this is occurring too slowly. He goes on to say that “the prescription for what ails the global economy follows directly from the diagnosis: strong government expenditure, aimed at facilitating restructuring [of the economy], promoting energy conservation, and reducing inequality, and a reform of the global financial system...”.

On the issue of inequality, FEPS has recently publish a paper on the relationship between inequality and wealth, and it finds that a comparison of the levels of wealth and inequality in different countries shows that countries with a high degree of inequality in general have lower levels of wealth. While this might sound counter-intuitive, the paper sets out the empirical evidence that supports the hypothesis. It finds that rising inequality results in a lower level of prosperity. In addition, higher inequality also results in a lower level of economic prosperity, lower levels of education and poor institutions that have more corruption, more political instability and lower levels of democracy.

The government is undoubtedly in an economic straightjacket – but there is always wriggle room. The government may not be Houdini, but there is most certainly sufficient wriggle room to make budgetary decisions that can reduce inequality and start the process of reversing economic decline.

Posted in: EconomicsEconomicsInequalityInequality

Tagged with: alternativeeconomicstrategyincomeinequalityinequalitycrisis

Sinéad Pentony

Sinead Pentony

Sinéad Pentony is Associate Director with the Trinity Foundation, Trinity College Dublin working towards securing private funding and other support for a range of projects - primarily from individuals, companies and foundations.

Her fundraising portfolio includes supporting the Schools of Computer Science and Statistics; Mathematics; and Pharmacy and Pharmaceutical Sciences to deliver on their strategic priorities with the help of philanthropy support and sponsorship.

She has been working in the not-for-profit sector since the mid-1990s and generating income and fundraising has been a key part of her roles. She develops strategic relationships with a view to delivering mutually beneficial outcomes.

Her previous roles have involved undertaking research and policy work across a variety of public policy areas, policy influencing and advocacy work with a wide variety of stakeholders, public communications, lecturing, and leading or supported strategic planning and review processes aimed at refocusing the work of programmes and organisations in a changing context.

Sinéad was previously head of policy with TASC.


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