Irish Mail on Sunday, July 25, 2010
Each Irish child at birth is saddled with over â‚¬40,000 of debt according to one economic sound bite currently doing the rounds. The figure is a bit exaggerated, but even if true, it is meaningless when taken in isolation. It tells us little about the State of the economy and nothing about the prospects of each individual child.
Being born in Ireland confers a host of benefits that more than offsets that liability. If each child is liable for a share of the national debt, then each child must be credited with a share of the national wealth. That wealth is considerable. We face major economic difficulties but we are still among the richest countries in the world.
Our health and social services may not be ideal but they are far better than those available to most of the worldâ€™s population. Each child born in Ireland is fortunate by world standards, with an entitlement to practically free health care and free education. State services could, of course, be improved. Waste could be eliminated, management improved and, if our debt servicing costs were lower, we could spend more.
Those are real concerns. But letâ€™s not forget what we have.
If we were to divi out the national assets, each child would also be entitled to a shares in a number of very profitable State companies, the ESB, Bord Gais, Coillte, Bord na Mona. We can all also claim a share in the very valuable and extensive economic infrastructure owned by the State. We have plenty of assets to set against our national debt.
The economic situation is bad, but making it sound worse than it is, or trying to express it in popular sound bites, doesnâ€™t help. It only serves to dampen the prospect of a renewed confidence that is essential to economic recovery. It doesnâ€™t help people to understand what needs to be done to tackle our current difficulties.
Irelandâ€™s national debt is not out of line with the Eurozone average. Of course, it is too high, but according to estimates compiled by the National Treasury Management Agency from the latest EU and Irish Government forecasts, we are currently fourth in the Eurozone league table behind Greece, Italy and Belgium.
Our total government debt stands at 86.9% of gross national product compared to a Eurocone average of 84.7%. Thatâ€™s on the basis of total Government debt as a proportion of gross national product. Thatâ€™s taking account of the â‚¬17 billion put into Anglo Irish and Irish Nationwide but it doesnâ€™t take account of the offsetting â‚¬22 billion of assets in the National Pension Reserve Fund.
At end-2009 Government debt stood at â‚¬104.7 billion. That works out at about â‚¬24,000 per head of population or â‚¬18,000 per head when the pension fund money is taken into account. The â‚¬40,000 per head quoted by one economist includes provision for other potential debts arising from the banking crisis but they are not included in any of the official estimates of debt. In any case, itâ€™s not the level of debt, but the cost of servicing it thatâ€™s important in the short-term.
We are not going to be paying anything off the debt for the foreseeable future. The debt will be increasing and weâ€™ll be paying increasing amounts of interest leaving less money available to fund State services. Interest payments this year will take 17.4% of tax revenue according to the latest estimates. Thatâ€™s a big imposition although it is not unprecedented. The figure was over 20% for most of the 1970s. It peaked at 35% of tax revenue in 1985, dropped to 27% in 1990 and didnâ€™t come down below 17.4% until 1997.
It dipped to 3.4% in 2007 and has been rising rapidly since. According to the National Treasury Management Agency it will go over 20% in 2013. But national debt servicing costs as a proportion of both national income and tax revenue will still remain well below the levels experienced in the early 1990s.
Our national debt will continue to increase as the Government borrows, albeit at a declining rate, to finance its budget deficit. We can assume that living standards will decline further, the tax burden will increase, spending on State services will be cut and more people will lose their jobs.
It is those real economic effects that we need to be zoning in. The level of debt and the level of interest payments are, of course, important, but of far greater importance is how the burden can be minimised and more equitably spread. Thatâ€™s what the economic debate should currently be about, particularly in the run-up to a budget which seems increasingly likely to hit the poorest and more vulnerable the hardest.