Ireland’s ‘Great Slowdown’
Amidst the noise of the last budget tax cuts, once-off spending increases, tax bands and social protection rates — there is one projection buried deep in the budget papers that received little attention but which will have considerable implications for the economy and living standards in the years ahead.
The Government is projecting average annual growth rates out to 2030 will be 2 percent. That may not seem all that interesting until we compare it with previous periods of growth. In the boom years prior to the crash, the average annual growth rate was nearly 6 percent.
In the recovery period after the crash, average annual growth rates were 4 percent.
However, it is estimated that average annual growth rates will fall to 2 percent until 2030. In the years ahead, economic growth will slow considerably. This is not surprising.
Analysts have been predicting this slowdown here and throughout Europe. Some are predicting growth rates after 2030 will fall to 1 percent — essentially an economic drought.
There are many explanations for this slowdown: ageing demographics, climate change and technological disruption (increasing use of AI and automation).
Whatever the reasons, it will have considerable implications. Let’s look at two areas. Wages and Profits Over the last 20 years profits have been growing at a faster rate than wages.
Over the Covid lockdowns profits grew at more than twice the rate as wages. Wages have not been keeping pace with productivity; or put another way, wages have not kept pace with the growth in business income that workers themselves have produced.
While employers have been grabbing a larger share of productivity growth, during periods of relatively high growth they could do this and still leave enough for wages to grow in real terms (i.e. after inflation).
Government tax cuts also help to increase after-tax income. In short, when there’s a lot of money around, there’s enough for everybody even if some take more than they need. But what happens when economic growth slows? Profit and wage growth slow down. Here’s the problem: if employers want to maintain their past profit levels, they need to grab more of productivity — leaving workers with even less.
A growth slowdown, therefore, intensifies the struggle over reduced income growth. Where workers are organised, they are in a stronger position to defend their living standards against employer greed. But what about the overwhelming majority of private sector workers who are not organised — especially in the low wage, low value-added sectors?
In a low-growth environment, the unorganised will have few defences. The Social State Lower growth has implications for the social state — public services and social protection. While there is a lot of focus on tax increases to fund public services, it is growth that actually drives tax revenue. Higher growth means higher wages and spending, increased employment, higher profits which can fund more investment.
When growth slows, so do all these components. Just like the intensification of the struggle between employers and employees over a smaller pool of resources, we will witness something similar with regard to the social state.
There will be increased competition between different public services (health or education), between public services and social protection (higher pensions or more nurses) and between social spending and capital investment. We are already a significant under-spender on public services.
We’d have to spend an additional €9 billion on public services in 2024 just to reach the average of those high-income EU countries. So what is government projecting for public services in the years ahead? By 2026, public services will be cut by nearly 2 percent in real terms per capita. Instead of increasing our investment in public services to catch up with other EU countries, we are actually falling back.
To be fair, this projected cut in public services is a base-line. The government could correct this in subsequent budgets. However, early signs are not encouraging with recruitment freezes in the health and homecare sectors. And if the Government persists with tax cuts, this will divert even more money away from vital services.
In all this, the need for a vibrant and growing trade union movement becomes even more necessary. It is only the trade union movement that can resist employers in the workplace and promote the living standards of workers.
And we need organised labour to stand up for public services.
What other civil society organisation has the capacity to fundamentally reframe the public debate and policy options? But let’s be clear: we will need to do this in the context of ever-increasing competition over dwindling resources.
If we don’t meet this challenge, who will?
This article was written by SIPTU Researcher, Michael Taft for Liberty newspaper. You can download the full paper here.