An Irish solution to an Irish economic problem

Here's a question: if you were a doctor whose patient was complaining of vomiting, would you (a) give him a bucket to try to deal with the mess; or (b) try to sort out the underlying sickness?

Going on recent evidence of how they are treating our economic woes it would seem that if you are an Irish government politician then you would hand out the bucket. How else can one explain the cack-handed response to Ireland's ever-worsening economic situation? All the talk in recent weeks has been about the absolute necessity of improving the hole in our national public finances. Reducing government spending, primarily through reducing the public service pay bill seems to be the solution, added to increases in tax on the public at large. Certainly, there are any number of people who are quite willing to take a swipe at the public service.

Now, I'm certainly not going to say that public service pay bills are not in need of being looked at: but in what way is that going to deal with our underlying problem? Is it the size of that pay bill that has caused the hole in the public finances? It is not. The public finances are currently in the state that they are in because the underlying Irish economy is not moving. Our economy is stagnating and this has led to a huge reduction in tax revenues for the Government.

If the Government wants to improve the public finances it therefore needs to deal with the underlying problem and do something to increase economic activity. Will a reduction in public service wages increase economic activity? Will tax increases do likewise? Clearly the answer to both questions is a resounding 'no'. The only result of either would be that there would be less money in the economy and an even lower level of public confidence, both of which will lead to even less economic activity and a consequent lower tax take, greater unemployment, higher social welfare costs and - yes, you've guessed it - a bigger hole in the public finances.

The Government needs to do everything in its power to increase the tax take. This means looking at reducing VAT to increase retail sales, direct support for businesses to ensure that they can access funds to do business, and tax measures that increase the individual 'feelgood' rather than reduce it.