WHATEVER happened to the misery index? Once upon a time a combination of inflation, unemployment and growth seemed to provide a reliable indicator of a government’s popularity.
Not any more, it would seem. The Irish misery index must be near all-time lows but the Government is floundering, both in the polls and in its activities. It seems a useful question to ask whether the failure of the misery index represents a change in the nature of politics, or something different in the nature of the economic data itself.
These indices sometimes seem like those things in particle physics: as soon as you start to observe them, they change.
The most famous example was the 1990s attempt to control inflation by targeting the money supply. Once central banks started acting on it, the apparent relationship, if there was one, broke down.
In the Irish case, there is certainly some evidence of hidden elements which may make the headline figures misleading, to the discomfiture of government.
Inflation seems to me the most fascinating of these complexities. What once would have been thought miraculous – zero price rises – is largely taken for granted. Yet, apart from a few really shrewd operators, no one would have predicted such a situation in much of the developed world.
In Ireland, prices actually fell 7pc after the crash. Inflation returned to a more historically normal 4pc from 2010, but has steadily declined since, averaging just about zero last year. Now the question is not just when, but whether, general price rises will ever return.
One does not need to know the answer to that to see that the present position creates difficulties as to what can regarded as good news or bad. The detail shows an enormous discrepancy between items. One cannot expect people to rejoice in low inflation when the media is full of shock horror stories about rising prices costs in rent and insurance.
The stories are correct, of course. Housing, which makes up 14pc of the notional basket of household spending costs, jumped by 13pc last year. The overall rise, however, was just 1.3pc – because the cost of water services fell by 30pc. We all know why that happened, and why it will do nothing for consumer satisfaction.
There is also something the statistics cannot capture – method of payment. Insurance costs rose 8pc, with health insurance up 3.6pc. These come in the form of big annual bills and, even with staggered payments, it is a lot more upsetting than the same amount being paid out weekly in PAYE income tax.
The endless row about how to pay for water has a lot to do with payment: hefty charges on households with little weekly discretionary income; versus increased taxation where it is impossible to see who is paying what, depending on how the extra tax revenue is collected.It is possible that, despite no headline inflation, prices are a cause of disgruntlement to many. Employment, on the other hand, would seem to be a simple case for joy unconfined. Last week saw the CSO declare that unemployment had eased to 6.6pc – the kind of figure that economists would be inclined to regard as full employment, beyond which the consequences are wage inflation and/or immigration.
Earlier, figures on employment itself showed the first net immigration since the crash, with 3,000 more arriving in the country than left last year. That was on the back of 65,000 extra jobs – itself the largest annual increase since the recovery began. A survey by international consultants Nielsen found the Irish were the third most optimistic people in Europe when it came to job prospects – behind Czech Republic and Switzerland – but they would rank far lower than that in satisfaction with the Government.
With some justification, people are sceptical about ministerial claims to have created jobs; although in this case the parties involved seem entitled to credit in creating conditions after the crash that made such progress possible. But as with inflation, there are details in the figures which may confine some of the joy.
The youth unemployment rate is above 14pc, even if it has fallen from 17pc. Total numbers at work are still 5pc below the 2007 peak and a third of the jobs lost have not been regained. It is true that the peak was entirely artificial but that does not reduce the pain of job loss. There is also the fact that both peak and trough were dominated by construction jobs.
These are now growing at a handy 10,000 a year, and this figure seems like to rise. But they fell at 50,000 a year in the crash and the social and economic consequences of that for many regions must be added to the individual traumas. The loss of those jobs, and the fact that the new ones are mainly in urban areas, helps explain unhappiness in rural and semi-rural areas in particular.
That leaves economic growth, which we all know is anything but straightforward here. The official GDP measure is more or less meaningless, but there is no escaping it. Even when the CSO produces its complicated, but more realistic, new measure we will continue to have to live with a lot of nonsense about incomes, debt and spending levels based on GDP.
Even that proxy for growth, tax revenue, ain’t what it used to be. Corporation tax revenues have been far ahead of expectations in recent years and the public at some level will be aware of the doubts about whether this a temporary phenomenon.
It probably is, although there is no telling how long “temporary” will last. The Department of Finance seems to have got a handle on the figures for the first two months of 2017 at least, and the bonanza should be long enough to provide the €3.5bn which Finance expects in the big collection months of June and November.
The taxes which should give a guide to domestic growth painted different pictures. Vat revenues are 17pc up on last year, and 8pc above expectations. On the other hand, income tax has disappointed, especially after those employment numbers, and is 4pc below target. Even the less volatile PRSI receipts rose less than 2pc on the previous year.
All in all, one can see why the Government has a hard sell, despite the remarkable progress of the economy since 2012. It looks like they will fall back again on the old crutch of promising tax cuts. The opposition, big and small, will do the same.
One can see why, with the income tax burden up by a half since 2009. The problem here is credibility. After all the shenanigans and promises, income tax receipts of around €20bn this year are bang on the targets set as far back as 2013. The present targets call for a further €12bn in tax revenues by 2021, while current spending grows by just €4bn.
I look forward to hearing that explained in the election campaign, although I don’t suppose it will be. Perhaps what is happening, here and elsewhere, is that public cynicism is replacing the old measures of confidence and pessimism as guides to voter intentions. That is much more dangerous and, once established, far harder to fix.
Article Source: http://tinyurl.com/kbwqb42
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- 18 Apr 2019Ibec expects employment growth to slow down in 2019
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