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Portugal unrest shows that austerity is not the answer

YOUR report on protests in Portugal over considerable tax rises and spending cuts illustrates again the folly of austerity ("Protest at tax hikes in Portugal", The Herald, November 28).

Contrary to what the right wing often claims, raising tax will not as a rule reduce revenue, but in a time of recession reducing private sector spending power while simultaneously curtailing public spending is madness and will exacerbate recession and hence reduce the tax take. Tax, after all, is dependent on economic activity, so it is a statement of the obvious that reducing economic activity will result in less tax revenue. On top of this it might not even be possible to reduce spending by as much as the Portuguese Government hopes, as it is inevitable that yet more people will have to claim social welfare.

Protugal is of course bound by the straitjacket of the euro which requires it to attempt to reduce budget deficits in the short run even when this will inevitably increase them in the medium to the long run. Moreover, it makes it more expensive for the country to borrow as lack of control of its currency exposes it to the bond vigilantes and prevents it from borrowing from the European Central Bank, which would be the sensible course in recession. The fact that the rules of the euro make no sense means that they will have to be changed or else countries like Portugal will have to leave the euro. In the meantime the lessons of Portugal and others show us that austerity is a terrible policy. It is no good for the usual suspects to lecture us about how these countries were "living beyond their means" because while Portugal was running a deficit before the financial crisis, its neighbour Spain was balancing its budget and doing everything the neoliberals claim was right, yet it is in the same mess and suffering from the same "austerity crisis".

Austerity must end and countries must invest in both infrastructure and people now so that they can enjoy sustainability later.

Iain Paterson,

2F Killermont View,

Glasgow.

Contextual targeting label: 
Finance

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