MNeagle
26th November 2010, 04:53 PM
DUBLIN—A church-run soup kitchen here symbolizes the human cost of Ireland's crisis: Middle-class homeowners, squeezed by rising debt and falling incomes, line up for food parcels alongside foreign asylum-seekers and the long-term unemployed.
These are Ireland's "new poor"—ordinary people with houses and jobs laid low by years of austerity, and now facing even tougher times as the government slashes public-sector jobs, raises taxes and cuts social welfare.
Theresa Dolan runs the Capuchin Day Center near Dublin's law courts that caters to the swelling ranks of the city's poor. Before 2008, around 250 people came each day for a hot dinner, she says. Now there are 520. And the visitors' profile is changing.
"There are people who have beautiful houses and a car but no food," she says. "All their spare cash goes on the mortgage."
This week, the Irish government unveiled a new four-year belt-tightening plan to repair public finances broken by recession and the cost of propping up the country's beleaguered banks. It is a key precondition of the estimated €85 billion bailout Ireland is currently negotiating with the European Union and the International Monetary Fund.
But it comes after three years of hairshirt budgets that have already sucked billions of euros out of the economy and the pockets of the middle classes. Since the onset of the crisis, Ireland's government has implemented some €15 billion of cuts—equivalent to roughly 10% of gross domestic product.
"Public-sector workers have seen their salaries fall by 13% over the last three years," says Paul Sweeney, economic adviser to the Irish Congress of Trade Unions. "Now they'll be paying significantly more, in income tax and things like water rates, university charges and property levies."
The measures are draconian. The government plans to shed nearly 25,000 public-sector jobs, slash welfare spending and reduce the minimum wage. A new property tax will be introduced, water charges imposed, and the tax base expanded to bring in lower-income earners. It all adds up to €10 billion in cuts and €5 billion in taxes over the next four years.
Ministers argue that such radical measures are needed to tame Ireland's gargantuan budget deficit, which this year stands at 32% of GDP—the largest in Europe—and to reasssure investors who have stampeded out of Irish government debt. Yields of Ireland's 10-year bonds reached a record Friday of nearly seven percentage points above benchmark German bunds.
Officials deny that lower-income groups are bearing the brunt of the cuts, highlighting measures to reduce tax relief on pension contributions, which will increase the tax burden on higher earners.
"If you look at the adjustments we've made, those that earn the most will pay the most," says Eoin Dorgan, a Finance Ministry spokesman.
But it's clear that poverty is on the rise. Last year, almost a quarter of households were in arrears on utility bills, mortgage payments or other loans, compared to just over 10% a year earlier, according to a survey released this week by Ireland's Central Statistics Office. Some 11% of households had to go into debt to meet ordinary living expenses, as disposable income per household fell 6.3%, the survey showed.
It's all a far cry from the boom, when Ireland was named the Celtic Tiger and enjoyed years of export-led growth. Hundreds of U.S. firms set up shop here, attracted by a low corporate-tax rate and an educated, English-speaking workforce.
But with the collapse of Ireland's property market, many of those who bought real estate in the good years are now in negative equity—with their houses worth less than the loans they took out to buy them. Many of these are unemployed.
"We call them the new poor—people who have mortgages but no income and no money for anything," says Pat O'Donoghue, director of liturgy at Dublin's Pro Cathedral, who runs a charity distributing unwanted Christmas gifts to the poor.
One casualty of the downturn is Brendan Fagan, a 52-year-old IT manager at a Dublin hospital. As his annual salary was cut from €65,000 to €50,000, he could no longer afford the steep mortgage payments on his house in Clondalkin, a western suburb of Dublin. Last year he put the two-bedroom-house, bought in 1994, up for sale. It was a tough decision. "I intended to only go out of this house feet first in a wooden box," he said.
But Ireland's real-estate bubble had burst, and prices plummeted. Mr. Fagan eventually sold his house after a year and a half for €150,000—a little more than half the original asking price. The only place he could find for the money was a small house in Longford, 70 miles away. He will now commute two hours each way to work by public transportation.
Mr. Fagan says he's lucky to still have a job. But he worries about the impact of the new austerity measures.
"The greatest disappointment for us is that we all thought things would get better after all the hardship of the last couple of years," he says. They haven't. "People on the lowest rung of society are having to pay the bill."
Those on lower incomes than Mr. Fagan are also apprehensive. Leah Speight earns €170 working a 20-hour week at a Dublin shopping mall. A single mother, she receives income support and a child benefit, which will likely be cut. Her take-home pay might also shrink with the lowering of the minimum wage. She's in arrears with her rent and fears worse to come.
"I already feel like I'm only just managing, and now I'm going to be hit from all sides," she says.
Ms. Speight intends to join a big union-organized march in Dublin Saturday to protest the government's four-year plan. "It's going to be a big shocker," she says. "You can really feel the anger now."
http://online.wsj.com/article/SB10001424052748704008704575638841899271092.html?m od=WSJ_hp_LEFTTopStories
These are Ireland's "new poor"—ordinary people with houses and jobs laid low by years of austerity, and now facing even tougher times as the government slashes public-sector jobs, raises taxes and cuts social welfare.
Theresa Dolan runs the Capuchin Day Center near Dublin's law courts that caters to the swelling ranks of the city's poor. Before 2008, around 250 people came each day for a hot dinner, she says. Now there are 520. And the visitors' profile is changing.
"There are people who have beautiful houses and a car but no food," she says. "All their spare cash goes on the mortgage."
This week, the Irish government unveiled a new four-year belt-tightening plan to repair public finances broken by recession and the cost of propping up the country's beleaguered banks. It is a key precondition of the estimated €85 billion bailout Ireland is currently negotiating with the European Union and the International Monetary Fund.
But it comes after three years of hairshirt budgets that have already sucked billions of euros out of the economy and the pockets of the middle classes. Since the onset of the crisis, Ireland's government has implemented some €15 billion of cuts—equivalent to roughly 10% of gross domestic product.
"Public-sector workers have seen their salaries fall by 13% over the last three years," says Paul Sweeney, economic adviser to the Irish Congress of Trade Unions. "Now they'll be paying significantly more, in income tax and things like water rates, university charges and property levies."
The measures are draconian. The government plans to shed nearly 25,000 public-sector jobs, slash welfare spending and reduce the minimum wage. A new property tax will be introduced, water charges imposed, and the tax base expanded to bring in lower-income earners. It all adds up to €10 billion in cuts and €5 billion in taxes over the next four years.
Ministers argue that such radical measures are needed to tame Ireland's gargantuan budget deficit, which this year stands at 32% of GDP—the largest in Europe—and to reasssure investors who have stampeded out of Irish government debt. Yields of Ireland's 10-year bonds reached a record Friday of nearly seven percentage points above benchmark German bunds.
Officials deny that lower-income groups are bearing the brunt of the cuts, highlighting measures to reduce tax relief on pension contributions, which will increase the tax burden on higher earners.
"If you look at the adjustments we've made, those that earn the most will pay the most," says Eoin Dorgan, a Finance Ministry spokesman.
But it's clear that poverty is on the rise. Last year, almost a quarter of households were in arrears on utility bills, mortgage payments or other loans, compared to just over 10% a year earlier, according to a survey released this week by Ireland's Central Statistics Office. Some 11% of households had to go into debt to meet ordinary living expenses, as disposable income per household fell 6.3%, the survey showed.
It's all a far cry from the boom, when Ireland was named the Celtic Tiger and enjoyed years of export-led growth. Hundreds of U.S. firms set up shop here, attracted by a low corporate-tax rate and an educated, English-speaking workforce.
But with the collapse of Ireland's property market, many of those who bought real estate in the good years are now in negative equity—with their houses worth less than the loans they took out to buy them. Many of these are unemployed.
"We call them the new poor—people who have mortgages but no income and no money for anything," says Pat O'Donoghue, director of liturgy at Dublin's Pro Cathedral, who runs a charity distributing unwanted Christmas gifts to the poor.
One casualty of the downturn is Brendan Fagan, a 52-year-old IT manager at a Dublin hospital. As his annual salary was cut from €65,000 to €50,000, he could no longer afford the steep mortgage payments on his house in Clondalkin, a western suburb of Dublin. Last year he put the two-bedroom-house, bought in 1994, up for sale. It was a tough decision. "I intended to only go out of this house feet first in a wooden box," he said.
But Ireland's real-estate bubble had burst, and prices plummeted. Mr. Fagan eventually sold his house after a year and a half for €150,000—a little more than half the original asking price. The only place he could find for the money was a small house in Longford, 70 miles away. He will now commute two hours each way to work by public transportation.
Mr. Fagan says he's lucky to still have a job. But he worries about the impact of the new austerity measures.
"The greatest disappointment for us is that we all thought things would get better after all the hardship of the last couple of years," he says. They haven't. "People on the lowest rung of society are having to pay the bill."
Those on lower incomes than Mr. Fagan are also apprehensive. Leah Speight earns €170 working a 20-hour week at a Dublin shopping mall. A single mother, she receives income support and a child benefit, which will likely be cut. Her take-home pay might also shrink with the lowering of the minimum wage. She's in arrears with her rent and fears worse to come.
"I already feel like I'm only just managing, and now I'm going to be hit from all sides," she says.
Ms. Speight intends to join a big union-organized march in Dublin Saturday to protest the government's four-year plan. "It's going to be a big shocker," she says. "You can really feel the anger now."
http://online.wsj.com/article/SB10001424052748704008704575638841899271092.html?m od=WSJ_hp_LEFTTopStories