Household V Business debt -revisited with new numbers

http://www.centralbank.ie/polstats/stats/cmab/Documents/ie_table_a.6_loans_to_irish_residents_-_outstanding_amounts_(incl._securitised_loans).xls

As observed previously, the reduction in private debt in ireland is outpacing the accumulation of public debt. We as a country are more than breaking even and are in fact mending our position (financially at least, the economy is still dire).

However, this reduction in private debt is almost all occuring in the business sector, and households are not achieving any serious improvement in their debt positions.

Between Jan 2009 (the peak of debt) and today (may 2012), households have reduced their debts from 184 billion to 159 billion (14%). Whereas (non-financial) businesses have reduced their debts from 166 billion to 87 billion (48%).

Obviously, a certain amount of this debt reduction in both the household and the business sector is occuring through writedowns, bankruptcies, defaults etc.. I do not have figures to quantify this though.

Nevertheless, the picture is stark. Business has reduced debts dramatically, and they are now roughly half what they were, in just 3 years of austerity. It seems unbelievable to me that this could have been achieved by writedowns alone (indeed the amount of debt reduction is even larger than the total loan loss provisioning of the Irish banks), and a substantial part of it must have come from profits being diverted to paying off debt.

It seems obvious that businesses have access to a significant income stream, that serious profits are being made (despite the continual pleading), and that our tax system (geared towards taxing households rather than business) is increasingly unfit for purpose. It made sense previously, but our low corporation tax is obviously an imbalancing force, which is allowing business to make supernormal profits while households seem to have hardly anything surplus at all with which to mend their positions.

This policy must change. We are in a crisis, we can no longer afford to maintain policies that surrender business tax revenues, placing all the strain on the rest of society. Businesses are increasingly debt free and should not be spared the tax burden that debt choked households bear.