Walter Hill Business Consultancy

28/02/2016

Election 2016 - What a Mess

Your voting choices are stark and will probably result in a further voting choice within 6 months. It demonstrates that the Irish Political Landscape is a mess and has been for a very long time.

Ask yourself these questions:

1. Do I really trust any of the established Political Parties based on historic performance over the last 20 years?
2. Do I trust any of the new Political Parties to have the skills and basic competence to be a break on the established Political Parties in Government to run an economy which is subject to so many external factors?

Many promises are being made most particularly by the established Political Parties to increase the amount of money in your pocket. If you really believe that the standard of living of most citizens will improve in the short term you may be partly correct. If however, you believe that the standard of living for most citizens will increase in the medium term, you may be very disappointed.

In the period 2016-2020 with estimates of GDP growth projected to average 2.5%, this presupposes that we will all be much better off. However, it takes no account of the changing external factors, over which, as an open trading economy we have little or no control. Right now, a range of very positive factors exist to assist GDP growth in Ireland

- Record low Oil Prices
- Quantitative Easing by the ECB
- A Weak Euro assisting Exports
- Record low Interest Rates
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The positive factors will not last, they never do. In addition, external real threats to Ireland’s economy already exist, including a slowing of the US Economy, and similarly the slowing of the critical Chinese Economy, low EU GDP Growth, possible exit by Britain from the EU and existing Debt to GDP levels of most major world economies including Ireland.

There also continues to exist, inherent weaknesses in the Global Banking Sector, which may result in a new Global Financial Crisis, if the brakes are not put in place very quickly.

The existing Government of Fine Gael/Labour is very quick to tell you that the economy is now repaired and that you should trust them to continue the job, leading to more jobs, better public services and improving standard of living for all. Do you really believe this statement based on all the intangible factors that currently exist and others that will undoubtedly exist? As usual, Irish Governments (both present and past) never deal in medium/long term economic solutions, preferring to offer all citizens short term gains to continue in power. The Fiscal Council whose sole role as an Independent Body and appointed by the current Coalition Government, is to advise the Government on verified economic policy are being ignored by the present Government and not for the first time.

I had recent occasion to seek a car insurance quote on behalf of a friend for 2016/2017. Despite maximum no claims bonus, a 10 year history with the same Insurance Company, no penalty points or motoring convictions they quoted on a like for like basis an increase of over 100% to renew. Needless to say, the renewal did not go ahead. However, in thinking about this quoted increase in pure money terms (had I decided to accept the quote on behalf of my friend) the gains (principally in USC reduction) resulting in Budget 2015 in October 2015 would have been wiped out. So much for the particular individual’s increase in living standards!

My prediction is that the standard of living and better public services for Irish citizens are a pipe dream and will not happen and certainly not over the next 5 years. It will be a slow painful awful slog and more of the same inept management of the Irish economy going forward.

Would you prefer a Government made up of really capable people with skills sets to properly run an economy where you also have a just society and that the principles of helping those that most need help is an absolute priority? Would you prefer a Government that has real accountability to the citizens of the country, where you are not constantly crucified with a plethora of indirect stealth taxes?

If the answer to these questions is yes, then you may need to think a little more outside the box, because no evidence suggests that the established Political Parties that have governed our country over the past 30 years or longer hold these principles to be correct and valuable.

If as I have suggested that the real standard of living increase over the next 5 years will be negligible as not to matter at all, then maybe we should forget about taxation policies that puts a few extra bob in our pockets in the short term and instead concentrate on policies that in the medium and longer term increase infrastructural development that can create wealth and jobs and at the same time provide the necessary excellence model in the delivery of public services that we all agree do not currently exist.

If you agree with this type of economic policy then you should find smaller political parties and independent candidates whose economic policies most closely align to these worthwhile principles.

So be careful how you vote!

WH
20/02/16

05/01/2012

Ireland - Budget 2012
A Regressive Budget - A Policy of Further Reduction in Growth & Demand

Commentary
What is absolutely clear is that despite Government itself, and the string of highly remunerated Government Department Advisers, nobody with responsibility for Budget 2012 remotely understands the basic principles of global economics.

Government comments both prior to and after Budget 2012 consistently harboured on job creation as the overriding policy to achieving growth in the economy going forward. Our Taoiseach, in his Television “Address to the Nation” in December 2011 mentioned job creation no less than 23 times.

With 14.6% current unemployment equating to 456,000, and possibly as high as 23% in real terms (if you include all those in self employment who do not qualify for social welfare payments and the thousands fleeing the country) then where are these jobs going to come from? There is no evidence of a jobs stimulus strategy that could remotely be described as progressive. What we have is piece meal non joined up thinking and more of the same around better training, general upskilling, research & development that will all be required when the economy improves. None of these initiatives will create sustainable jobs in the short term except perhaps in the high tech sectors and these job numbers will be low.

Leaving aside the overall European Debt & Euro crisis and a new Global Financial Crisis and the implications thereof, this and previous Governments do not appear to have the requisite skills set to rationally understand and adopt strategies to deal with an economy in serious difficulty.

Of course Budget 2012 was set to find savings of €3.8 billion. We all know that this is required to balance our fiscal deficit this year and over the next 3 years driven by clear and absolute policy by the IMF, EU and ECB. However, the strategy adopted by Government in Budget 2012 was regressive in the extreme and further damaging to an economy already on its knees in again attacking the already abysmal standard of living of the less well off, lower income groups and also middle income groups. Joan Burton’s required climb down of probable changes in the Disability Allowance budget statement is a clear example of those with responsibility not thinking rationally and logically before deciding on budget strategy. There will be further difficulties around the corner for the Government in this Finance Bill, which will cause widespread criticism and embarrassment from various interest groups including Government Backbenchers.

Today the EU revised Ireland’s GDP growth for 2012 at 1%. What is more likely is that average GDP growth for 2012 in the EU will be 1% or lower and Ireland’s GDP growth will likely peak at 0.5% in 2012. What that means is that the economy will remain depressed leading to further job losses. So where is the Government job strategy in this economic scenario for 2012?

2012-2015 will see a general global reduction in GDP growth. This will affect Europe, the USA, Britain, India, Brazil, Argentina China, Japan and also the Far East & Australasia. It would be really worthwhile for all Governments and their Economic Political Advisers to have a close look at the BBC Newsnight Programme recent Economic Charts (13/12/2011) www.bbc.co.uk/newsnight to really grasp the realities of the current European & Global Crisis and its likely impact going forward.

The effect of cuts in Government Expenditure and Services in Budget 2012 of over €2 billion is necessary and unavoidable, although many decisions relating to these cuts were clearly not properly thought through and will cause further hardship for individual groupings and the already severely marginalised in our society.

What is truly awful is that Government policy relating to their policy not to increase personal taxation at the expense of jobs was totally misguided and clearly indicates their total inability to understand the basics of economics. What they choose to do was to again attack the marginalised, the poor, the unemployed, the low and middle income groups at the expense of higher income groups. What the Government should have done was to tax all incomes above €90k with an increased new rate of taxation which in itself would have brought in a considerable level of the required 2012 budgetary income. The completely missed the opportunity to introduce a progressive tax strategy. In addition to this, they should have taxed child allowances as being the most fair & equitable progressive tax strategy for all families.

In simple economic principles, the following applies:

Take more out of the pocket of already hard pressed consumers and they will reduce their expenditure on goods and services. This in turn has the knock on effect on those businesses providing goods and services in reduced revenues and profitability. This in turn leads to cost cutting by providers of goods and services leading to capital expenditure cuts and static employment or job losses. As the situation progresses the crisis accelerates. Not very complicated? So why cannot our Government understand these basic economic principles?

The above paragraph actually represents both the current and past Irish Government Budgetary Policy since 2008 covering 5 separate austerity budgets. Whatever chance we might have had of creating badly needed progress in economic demand going forward, given the greater concerns of a global debt and a continuing global financial crisis has been totally negated by this & past Irish Governments. They have chosen to continue the policy of austerity and depressed demand allied to a policy of negligible or non existent growth in the economy.

So in effect this Government and previous Governments have assigned Irish citizens to a depressed economic environment and continued austerity for years to come through totally misguided economic policies, brought about by a lack of requisite economic skills and an understanding of the most basic principles of global economics.

©Walter Hill
15/12/2011

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05/12/2011

How Serious is Serious? – The Euro Currency & Euro Debt Crisis

Background
If not yet totally confused by economic commentary from EU Finance Ministers, EU Heads of State, the ECB, The EU Commission, the US Treasury Department, the OECD, the World Bank, the IMF, various Central Bank across the globe and just about anyone with an opinion to offer on the state of the Global Economy, the EU Debt Crisis and the future of the Euro Currency, in addition to the danger of a global economic crash, then you are either a genius or you just don’t care anymore.

Opinion & Commentary
What is actually certain is that a very serious problem now exists and the solutions are very difficult and extremely complex. So what is new about that since 2007? In truth we stumble from one crisis to another with no sign of consensus on the solutions.

Many consumers across the globe are rightfully very worried about their core currencies, and their linked deposit/investment savings be that in US Dollar, the Euro, the Swiss Franc, the Danish Kroner, the Australian Dollar, the Yen and many more.

What happens to all currencies if the Euro were to fail? The implication, were this to happen, are as grave as it can possibly get. Every currency in the world would devalue, global economic growth would stagnate and or lead to a serious global depression, possibly lasting up to 5 years and banks would also fail across the globe. The value of deposit saving could decrease by as much as 30%.

Many Irish consumers are asking the same question as consumers in countries across the world right now. What will happen to my investments or deposit savings denominated in Euro, Dollars, Sterling and many other currencies if the Euro were to fail? Should I open a Treasury Currency Account in US Dollar or Swiss Francs or Sterling? Should I buy Gold – I heard that Gold has risen in value with substantial gains. How do o I diversify and protect my wealth, assuming that you have any wealth, irrespectively of how large or small this may be?

No matter what you do right now, inherent risks will accompany all decision for the obvious reason that no safe haven for cash actually exists at this time.

Hang on, I thought that all deposits in Irish Financial Institutions were protected by Irish and EU Guarantee Schemes from €60k - €100k and beyond depending on the financial Institution. Yes you would be right, but that is of no consolation if the Euro were to fail and the actual value of deposits were to go south.

Consumers need to exercise serious caution relating to wealth diversification irrespective of the amount of wealth involved. It would be a grave mistake to jump without examining the consequences and risks involved. Expert professional advice in these matters is a prerequisite to any decisions made.

The Euro is unlikely to fail because the consequences are so catastrophic globally that it will not be allowed to fail. That is not to say that the Euro as we know it now may be the same as it is right now. It is possible that the Euro may have a varying value denomination depending on which EU State you reside in.

What is absolutely certain, irrespective of the Euro Debt Crisis or the Euro Currency Crisis dragging on for some considerable time, possibly years and possibly also involving new EU Treaties before resolution and calming of the markets, is that all consumers in Europe are facing into a period of severe austerity and a long recessionary trend, in addition to severe inflationary dangers.

Question: How Serious is Serious – The Euro Currency & Euro Debt Crisis
Answer: Very Serious but potential for proper longer term resolution.

©Walter Hill
1 December 2011

03/06/2011

Business Consultant