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Why our leaders will learn a lot from the Greek tragedy as benefit cuts bear down on the economy

By Neil Gibson

I am writing this month's column from a family holiday in Florida. I spent a week working in New York prior to the holiday, meaning I will have been out of the local news for the best part of a month when I return. Travelling can help bring perspective, helping prevent one's thoughts becoming too insular and the assumption we are the only country to face tough choices.

Wherever you are in the world, it is impossible to escape Greece - every headline relates to the 'will they won't they' nature of the deal for more funds.

As one commentator put it, we are beginning to suffer "grepetition" with the debate seemingly endless when the fundamental issue remains as it always has been - Greece cannot pay its debts. It cannot run the surpluses required to bring the debt down at the pace requested by creditors, and consequently it will have to find a more radical solution.

Applying austerity in a country with no offsetting monetary policy or possible currency devaluation will only cause increased misery. I have grown weary pointing this out over the years, but it is amazing that recent evidence has not convinced policy makers.

Can we learn anything from Greece? Possibly but it is hard to see who would want to do the learning.

The good news for Northern Ireland is that austerity is coming not against a backdrop of recession - as it was in Ireland and is in Greece - but against a growing economy, albeit a slowly growing one.

The Greece case also tells us that if you give money away in the form of benefits, subsidies or allowances, it is incredibly difficult to reverse the giveaway. Pensions dominate the Greek debate, but locally you can look at rate reliefs, grant aid, welfare payments or many other aspects of wealth redistribution, and all of them are proving impossible to reconfigure.

The first Tory Budget for two decades is clearly the key economic debate this month. Being away, I have not had a chance to study it in detail and I am not across the Northern Ireland reaction to it, though I suspect it will not have been hugely popular. But a slower pace of austerity is welcome - this is likely to result in upward revisions to our next forecast, due in the autumn.

The trajectory towards an increased minimum wage will be very helpful in Northern Ireland, though undoubtedly some firms will find the increased costs a challenge. It is true that the squeeze on benefits and tax credits will be acutely felt in a region that relies more heavily on these forms of income support, but the clear direction of travel is that it is going to be an increasingly difficult environment in which to be out of work.

For the Executive, this places a significant emphasis on the inactivity strategy and education policy because slipping outside the employment net is going to be a much tougher place to be over the next Parliament. Although the soon to arrive Department of the Economy will be seen as key in meeting the economic challenges, the Department of Education is critical too. Northern Ireland still fails too many people at a young age, which we then struggle to correct as the young people move into the later stages of their education and beyond.

Children leaving primary school with reading and writing deficiencies should be unacceptable in a modern wealthy society, and it is here that the economic challenge begins.

We don't have to look too far from best practice - Northern Ireland demonstrates it in many schools and locations - but we need a laser-sharp focus on any examples of anything less than best practice and adopt a no-child-left-behind mentality.

The UK has again moved to lower the headline corporation tax rate. I can't help but raise a wry smile at this policy, thinking back to meetings with the Treasury in the early days of the local corporation tax debate when they said the evidence clearly showed lowering the tax would have no long-term benefits. Presumably not a view they still hold?

It is worth pointing out UK corporation tax receipts have not fallen under the lower rate, and the country has reached record employment levels. One cannot read this directly across to corporation tax cuts, but it is further anecdotal evidence that the headline rate does still matter. The cost will be lower for the Executive to pursue a lower rate (or perhaps it is time for a 10% rate?), but equally the benefits will be more modest than would have been the case when the proposed cut was proportionately larger.

Sitting in the 30 degree heat and reading the Orlando Sentinel, a headline reads "local businesses seek investment assurances". It is nice to know we are never too far from economics, and that although we may think that we are a special case and that no one else faces hardships like we do, that is not the reality. It is good to get away from it all for a while. I suspect the problems will still be there when I get back.

Belfast Telegraph


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