Here’s the problem. We’ve a massive gap between the money the state is taking in, and what it is spending. The classical response is to increase the former (Through tax rises) whilst reducing the latter (Through spending cuts). Makes sense, right?
In theory, yes. Except that it does not take account of the psychological effect of the policy. We all know people who have relatively stable jobs, a few quid in the bank, and even they are terrified to spend. That’s what is causing the recession’s severity, a complete lack of confidence to spend. Now add in a reduction in household income caused by paycuts in the wealth-producing private sector and tax rises effecting all sectors, and people are afraid to get out of bed, never mind spend.
The US Republicans are saying that tax cuts are the answer. Give everyone a rebate to help prime spending. Not the worst idea, except for the fact that in the current climate, the Irish people might actually think rationally (Something they rarely do in the polling booth) and save the money for the proverbial rainy day, thus stopping in getting into the economy.
No, the country needs vouchers. A couple of billion euro in vouchers for shops, bought up by the government and distributed to taxpayers to spend directly, with the hope that they might throw a few of their own euro in on top of it, and get us all going again. Yes, there are pitfalls. How do we stop consumers saving the vouchers or just using them to substitute spending they would have done anyway? We can figure that out.
A bit mad? Possibly. But no more mad than the state squandering it on “schemes” and “initatives”. And at least it confronts the deflationary tornado spiralling towards us.