Obama has shown world the right road to recovery
We need an urgent change of course if we are to avoid an economic car crash at home, says Boyd Black
Published 10/01/2013 | 08:00
The US Republicans have climbed down and, at least temporarily, taken the US economy off the cliff. There is reasonable hope the US economic recovery will gather speed and benefit us all.
This is a credit to President Obama who, against right-wing opposition, has avoided the worst of the austerity agenda promoted in Britain by George Osborne and in the European Union by Angela Merkel.
Theresa Villiers, Secretary of State for Northern Ireland, is a cheerleader for the Chancellor's austerity agenda and his emphasis on deficit reduction. "We are on the right road," she says. "To change course now would be disastrous."
It is now clear, however, that George Osborne's fast-track deficit-reduction strategy has failed abjectly and that he is even going to fail to meet the more modest deficit reduction targets for 2014 set by Labour's Alastair Darling.
The Chancellor's rush to austerity in 2010 choked off the economic recovery then under way. First, he cut public expenditure, in particular public sector capital expenditure, too quickly.
At the same time, his exaggerated austerity rhetoric destroyed the confidence of private sector investors and consumers alike. Angela Merkel's eurozone austerity drive made things worse and the economy tanked.
The result is that government tax receipts have fallen dramatically and welfare benefit spending has risen to fund rising long-term unemployment.
The reduction in the deficit has been much less than planned by Alastair Darling. The Government are set to borrow an additional £212bn to pay for their economic failure.
In addition, what Theresa fails to mention is that, as a result, the Government is presiding over a greater-than-planned increase in total Government debt (the sum of the cumulated public sector deficits), debt that we and future generations will have to pay back.
The Chancellor has confirmed he is unlikely to meet his own target that debt would be falling as a percentage of GDP by 2016. Instead, with a stalled economy, the debt burden may be on an ever-rising path.
Thus, far from being on the right road, as Theresa claims, we may be heading for an economic car crash if we don't change course.
That is why the credit agencies are putting the country's AAA credit rating on "negative outlook". They are worried we won't be able to pay off this ever-increasing debt.
In the meantime, the Secretary of State says: do nothing. We must just sit and wait for an economic recovery that may never come, as stagnation takes its grip.
There is nothing in her proposals that will kickstart the Northern Ireland economy and deal with the horrendous levels of youth unemployment. There is nothing to offset the tightening squeeze on household incomes, as prices continue to rise faster than earnings and benefits are cut.
The Labour Party has proposed a temporary cut in VAT to ease the cost of living and boost spending.
We also support the introduction of a living wage of £7.20-per-hour in Northern Ireland, to be paid in Government departments and in firms winning public sector contracts. This could eventually benefit up to a quarter of the workforce.
To kickstart infrastructure investment and get the construction industry moving again, we have proposed spending the proceedings from the 4G mobile phone auction to build 3,000 new homes here. We would tax bankers' bonuses to fund 2,000 real jobs for the young unemployed. We prefer the Obama approach, which recognises the need for a stimulus to get things moving. We need a change of course, both in the UK and across the eurozone.
Economic growth will enable us pay off our debts - not further self-defeating austerity.
An important role can be played in this recovery by the current Irish presidency of the EU, if the Taoiseach succeeds in brokering an urgently needed US-EU trade deal that would stimulate trade and investment across our two continents.