Abolishing Ireland’s Senate may aid economic recovery

Abolishing Ireland’s Senate may aid economic recovery

The current public focal point of the Irish government’s political and economic reform is the upcoming October 4th referendum on whether or not to abolish the Irish Senate, known more commonly in Ireland by its Gaelic name, the Seanad.

Loss of public faith in the economy is only one result of a financial crisis and a housing bubble collapse. Another equally damaging effect is the popular loss of confidence in the ability of governments to manage said economies. To mitigate such loss government’s implement institutional reform of the state’s political structure and efficiency. This phenomenon has been strikingly obvious in the Irish boom-and-bust cycle. Rampant government and private borrowing, fueled by banks that were more than willing to lend money for mortgages, led to the meltdown of the economy in Ireland in 2008.

The government has skillfully portrayed the move as a fulfillment of election promises to introduce governmental restructuring and as a method of rebuilding the island nation’s economic integrity. The primary argument posed by the government in favor of the drastic reform measure is that, in a time of necessary and European Union-imposed austerity, the elimination of an undemocratic and virtually powerless upper house would save the Irish taxpayer about €20 million per year. However, this paltry amount is a  drop in the proverbial bucket, considering Ireland’s current national debt of €229 billion.

An increase in perceived government accountability and effectiveness is a key factor in an economic recovery. What is the current Irish government up against in its efforts to create such an environment? There are some positive indicators. Several years down the road from the crash of the Irish housing market in 2008, there is currently a housing boom of sorts occurring in Ireland, particularly in the Dublin area. A 12 percent rise in the price of houses and a rise in traditionally strong exports are indicative of some recovery.

In addition, the number of citizens on public unemployment benefits fell once again in August, and the service sector grew at a rate not seen in six years. Businesses have been drawn to Ireland as of late due to its corporate tax rate of 12.5 percent, a low rate by European standards. Public confidence will also most likely increase due to the fact that Ireland is due to end its European Union financial bailout by the end of 2013. The conclusion of the €85 billion bailout, widely seen as a national embarrassment, could bring relief and confidence to an austerity-weary Irish population.

But the picture is not entirely rosy. Despite a recent trend of decreases in the unemployment rate, the standardized jobless rate in Ireland is still at a very high 13.4 percent, and the youth unemployment rate is staggering at 30 percent. Tension with the International Monetary Fund and the EU has grown, as the government’s next budget is required to include a €3.1 billion budget “adjustment”, an amount protested by the Irish government.

Made up of new taxation and steep spending cuts, the adjustment is necessary to achieve the bailout’s intended deficit rate of 5 percent of GDP by the year 2015. Add this to the large remaining deficit and the fact that the increase in urban home values has aroused fears of another possible housing bubble, and it is safe to say that Ireland is not yet on entirely stable ground.

Public confidence in government institutions is an important facet of economic rebuilding and recovery. With this overall mentality, the Irish government is promoting the abolition of an entire branch of the legislature. The fiscal savings do not amount to a great deal, given the large national debt and the large size of the budget relative to the purported €20 million yearly cost of the Irish Seanad.

Despite the large public relations value of such a move, the small real monetary value of such reform necessitates substantial, tangible, proactive financial and economic reform by the government. If government reform efforts are received well by the public and if the government can keep its financial recovery measures on track, it is more likely than not that Ireland can slowly but surely work towards a return to the glory of the days of the Celtic Tiger.

Categories: Economics, Europe

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