Month: December 2011

ISSUES FOR IRELAND 2012  (I) NEUTRALITY

Even if there is no referendum in 2012 on or about the Euro, there will be a passionate public debate on the totality of Ireland’s relationship with Europe. If the previous debates are anything to go by, there is likely to be more heat than light. And, while European defence and Irish neutrality should be peripheral to any debate on what are primarily economic and financial issues, the old chestnut of the threat to Irish neutrality of any further European integration is likely to crop up – the more so in the context of a tighter union outside (even if overlapping with) the existing EU treaty framework .

I published the following piece, on Irish Neutrality, in the United States in November 2009, just after the vote on Lisbon 2. I could have written a lot more but the column was confined to 1200 words. I post it now, unamended, as we enter 2012:

“IRISH NEUTRALITY

Ireland is not a member of NATO, nor is membership likely. Yet few things can be calculated to raise blood pressure (and voices) more at the dinner table or over some drinks than the subject of Irish neutrality. In the campaign on the Lisbon referendum just ending the issue has again loomed large. No one can seriously get worked up over the proposed changes in qualified majority voting, or the alleged threat of legalised abortion, or even over the prospect of a future ukase from Brussels on our company taxation rate. But mention European Defence and the spectres conjured up include conscription into a European army, involvement in foreign wars and the loss of our international “nice guy” image. In vain have the “Yes” side pointed out that Lisbon threatens none of this. Debates on neutrality generate much heat without corresponding light!

The intellectual justification for Irish neutrality can be summarised briefly. Our history of centuries-long subjugation to English rule involved us, involuntarily, in British military and colonial ventures worldwide. Independence finally gave us an opportunity to gain distance and determine our own policy. Most famously we asserted our neutrality during World War Two (described in Ireland as “The Emergency”). We were fortunate in that we were not attacked or invaded, like the Netherlands or the Baltic States. Ireland’s geographical location and island status were vital factors in maintaining our neutrality, as was the fact that we were not in the way of the major belligerents or their war plans.

Whatever moral doubts we had about not fighting the Nazis could be assuaged by the presence, on the allied side, of the equally monstrous tyranny of Stalin’s regime. The response of De Valera to Churchill’s intemperate outburst over Irish neutrality in 1945 is recalled with pride (his signing the book of condolences for Hitler’s death generates embarrassed silence). Post 1945, staying out of NATO was justified, at first semantically, by the issue of Partition, and later, after Stalin’s death, by an expressed wish to stay outside the military alliances of the Cold War. With the collapse of the Soviet Union the case for joining a military alliance further diminished.

To avoid charges of isolationism, Ireland could point instead to a long standing support for collective security; starting with her involvement with the League of Nations and proceeding through to the United Nations. Ireland’s high-profile involvement in UN Peacekeeping operations – a source of national pride – could be cited. Irish soldiers have died in such operations from the Congo in 1960 onwards – the first Irish troops to die overseas for Ireland and in the cause of the UN. Ireland was seen as one of a small number of reliable UN members which could always be counted upon to step up to the plate when troops were needed. And being militarily neutral was felt to increase Ireland’s acceptability for involvement in sensitive UN peacekeeping operations.

Military neutrality enjoys wide popular support, at least according to opinion polls. This is perfectly understandable. No one likes or wants war. Avoiding the horrors of World War Two was a plus. Our UN peacekeeping record another plus. Not having a colonial past or the moral ambiguities of involvement in questionable military ventures are other positives, qualifying Ireland for a potential “honest broker” role. All in all, neutrality sits well with public self-perception of Ireland as non-aggressive, anti-colonialist, progressive and supportive of assisting the Third World. Brownie points are awarded (subjectively) for the moral superiority associated with being neutral.

Neutrality has again become a live issue as the world has proved to be less secure in the post Cold War era. There have been moves within the European Union (which contains three other non-NATO countries) to develop a common defence and security policy. These moves were given impetus and some degree of urgency by the wars in Croatia and Bosnia, where meddling by the EC as it then was, was accompanied by total impotence militarily when faced with the forces unleashed, and where peace was achieved eventually only through US intervention. The high watermark of these moves, as set out in the Lisbon Treaty, proposes mutual assistance (of whatever form) where a member state is attacked, and a vague commitment to improve national military capability.

These moves have galvanised Ireland’s neutrality lobby, which sees them, despite Government denials, as the first steps on a slippery slope. This against a background of daily television reports from Iraq and Afghanistan. Indeed the Iraq fiasco has focussed attention also on the use of Shannon Airport by the US military as a troop stopover. The government has held firm against demands that this use be ended as it contravenes “Irish neutrality”.

Any attempt at debate on neutrality rapidly turns into a dialogue of the deaf. The suggestion that Ireland should do its bit to cooperate, in the context of membership of a Union which has served Ireland well, has had a mixed reception. Ditto with the argument that, if we are seriously neutral we should develop our defence capabilities like other neutrals (Sweden, Finland, Switzerland) so that we could give our neutrality a practical status. Indeed this argument is neatly sidestepped by a variant of the “nice guy” theme – who would want to attack Ireland, so why spend money on defence?

Ireland’s get out of jail card, action by and through the UN, has lost much of its lustre in the face of the manifest failures of the UN in Bosnia and Rwanda in the 1990‘s. Whether sufficient force could have been marshalled by the UN in time to prevent the genocide in Rwanda is debateable. What is a fact is that the Srebrenica massacre took place within a so-called “UN Safe Haven” which proved anything but. While the UN “is all we have”, as a leading Irish left wing politician put it to me, its shortcomings have become more apparent with the end of the Cold War paralysis.

The fact that a veto-wielding Permanent Member of the Security Council can thwart international action when its interests or those of a client state are at risk has become more evident in recent years. So also the difficulty of organising effective action against a regime practicing internal repression. “Collective action” and sanctions are difficult to enforce and often the regime remains untouched while the ordinary populace suffers (consider the sanctions against Iraq after the first Gulf War). We have become sadder, if not wiser, at world events this decade.

The nature of the debate within the EU on defence, and the mixed enthusiasm for involvement in NATO’s mission in Afghanistan among those EU states involved, means that it is likely to be some time before EU policy in this area has developed. Ireland’s military neutrality, in all practical senses, is not under threat. Only an attack could change this. One is reminded of the story that in 1940 Queen Juliana telephoned Churchill to tell him that Holland (neutral during the First World War) was under attack from Germany and asked what he was going to do about it. What indeed!”

VACLAV HAVEL

The rather moth-eaten claim that “Ireland is at the heart of Europe”, which politicians like to parrot, took another dent yesterday with the funeral of Vaclav Havel in Prague.

Havel’s career is too well known to need repeating here in any detail. A poet and a playwright, Havel emerged from 1968 on as a leading political dissident who determinedly opposed communism and was a passionate supporter of non-violent resistance to the regime. He was imprisoned on a number of occasions, including almost five years from 1979 to 1984. He was lucky to have come to the fore when communism was atrophying; a generation earlier and he would probably have been murdered for his views, like the former Hungarian premier Imre Nagy, and others right across Central Europe whose fate is largely unknown or forgotten, disappeared into the century.

When communism began to crumble, once Gorbachev eschewed its trademark policies of murder, torture, mock trials, imprisonment and political oppression,  Havel came to the fore as a leading member of the Velvet Revolution which swept the communists from power. He became Czechoslovakia’s first President and, later, when the country split peacefully, he served two terms as President of the Czech Republic.

Our politicians could probably take a few lessons from the Czechs and the Slovaks on what  it really means to lose sovereignty ; their country  dismembered and occupied by the Nazis after 1938 and then to suffer a police state for four decades after the war, under a regime imposed and maintained by the Red Army. Havel first came to prominence when  Warsaw Pact forces invaded in 1968 to crush the Prague Spring.

It is worth recalling that , when Fianna Fail was  planning and executing its master plan for the 1977 elections, and seriously undermining the country’s tax base in the process, Havel, with a number of other dissidents, was publishing Charter 77 to protest – peacefully – the Czech government’s failings in the human rights area, including breaches of international commitments. By 1979, when Haughey was lecturing the Irish for living beyond their means, Havel was beginning a five year gaol sentence for subversion, for protesting the treatment of Charter 77 signatories.

But that was then and this is now. The bridge has seen much water pass under it. We pride ourselves on our human rights record and our profile internationally on similar issues. We support non-violence and even offer our expertise internationally  in conflict resolution, based on our  experience in Northern Ireland. We espouse the notion that all 27 EU member states are equal and speak of building alliances with like-minded member states. For all of these reasons Vaclav Havel was the type of person we should admire and mourn his passing as one of the significant figures – for good  – in Central Europe over the last 30 odd years.

Yet at his funeral, attended by many international heavy hitters including the Presidents of France and Germany, and Prime Ministers including Angela Merkel and David Cameron, Ireland was represented by the charge in Prague. Former President Mary Robinson attended, and is to be applauded for doing so. But where were the politicians? We couldn’t even rustle up a junior minister to do a same day journey on the government jet. They can’t all have been busy – or shopping. For a country where attendance at funerals is part of the political culture, this was a poor show, all the more so as Havel deserved it. Shame. Heart of Europe?

THE HOUSEHOLD CHARGE, PROPERTY TAX AND RATES

“An interim measure, set at a modest level and exempting many low income families” is how the Irish Times last Monday  described the new  Household Charge,  to be introduced at a flat rate of €100 per residence for the first year (2012), with limited exceptions.  It has been signalled as the precursor for  a more considered property tax to be introduced in 2014 but a story in today’s Irish Times (21 December)  suggests that the real tax may be brought forward to 2013, and will involve some form of self- assessment.

Everyone expected the €100 charge at least to double in 2013. A head of steam has been building up in opposition, with  a number of politicians ( left and  independents) plus some  high profile people, declaring they would not pay and urging  the public to boycott registering for the charge. One Socialist T.D. declared  that this issue could be the defining one for igniting public protest.  The decision to bring forward the property tax is clearly a political one designed to defuse the issue. (The cabinet also decided yesterday to tinker with the HSE in advance of phasing it out in preparation for the eventual introduction of universal health insurance. Again, the political intent is clear – to be seen to do something in an area subject to sustained public criticism, and where, moreover, there is mounting public anger at steep rises, announced and threatened, in the cost of private health insurance.)

Bringing forward the property tax to 2013 could show some Machiavellian intent also. Today’s story cites sample figures for a property tax based on the 2009 recommendations of the Commission on Taxation; not surprisingly the last government left these on the shelf. But even if the eventual rates introduced are substantially less than the samples mentioned, the tax is going to hurt, and hurt big time,  in any event, so why not get it over and done with quicker in the life of the government. Niccolo would certainly have approved.

Moreover, there is the bigger picture. It is just possible that, if there was full and frank discussion around the cabinet table, with the latest opinion polls and economic forecasts as background, the fast tracking of the property tax, which will hit the middle classes (some would say the coping classes) most, is the political quid pro quo from Fine Gael to Labour to secure its support for the inevitable cuts in welfare benefits and the probable reopening of the Croke Park Agreement necessary next year to try to tackle the structural budget deficit.

Perhaps that is crediting the politicians with too much. But assuredly the introduction of a property tax, however laudable the idea of one in theory, will test the government’s mettle and is likely to prove deeply unpopular. One consideration, not to be underestimated, is the widespread feeling among the middle classes that to describe a property tax as “widening the tax base” is cynical and misleading. As they see it, the same narrow group of people pay all the time.

This in fact is what led partially to the demise of the last attempt at a property tax, the Residential Property Tax (RPT). Deeply unpopular in concept, and introduced when a previous Fine Gael/ Labour government was on its uppers in the mid-1980s, the RPT relied on a system of self- assessment, with generous exemptions, the whole quickly degenerating into farce and non-compliance. It is important that this time the government gets it right. There is an opportunity now to establish a viable and reasonably equitable system, avoiding the mistakes and half-baked efforts of the past. And, incidentally, the amounts recommended for middle ranking  properties by the Commission on Taxation are probably less than what would have been the annual bill for domestic rates had they not been abolished in 1978.

It is worth recalling briefly the history of Domestic Rates– and its demise -in Ireland. Domestic Rates were levied in Ireland until 1977. They were extremely unpopular with those who had to pay them (local authority tenants were exempt), particularly in the latter years, as they began to rise sharply. The rates were levied by local authorities and used to fund their expenditure. This included – right down to the 1970s – a significant element spent on health and education, now paid from central funds, a historical hangover from the old Poor Law system.

Rates were calculated on an antiquated system of valuation, dating back to the mid-19^th century, patched and amended piecemeal over the years. Theoretically the valuations were meant to factor in location, size of dwelling and plot, as well as amenities (indoor toilet, two bathrooms, etc.); in practice, like most patchwork efforts, the result was a melange demonstrating  very dubious levels of equity and fairness. The “valuations” were in 19^th century money terms, translated into the present by a multiplier set annually by the local authority. For example ( a hypothetical but not unrealistic one) in 1975 a house with a rateable valuation of £20.00 could be levied at “£7.50 in the Pound” i.e. the annual bill would be £150.00. This at a time when the gross  average industrial wage was less than £2000 per annum!

How did people pay? The answer is “with great difficulty”. Pat Kenny spoke last week on radio about the  heavy burden on his parents of paying the rates. He did not exaggerate. Ask anybody who was a householder in 1975 about rates. It was, after income tax, the major financial item in the average annual household budget, and , unlike PAYE, it had to be paid in one or several instalments. A particularly devilish practice was for the local authority to “value” newly built houses – and there was a relatively significant  building boom in the early 70s – relatively highly, but to grant rates rebate on a sliding scale over 10 years (i.e. 90% declining to zero over 10 years). This helped ease in the heavy payments and to an extent neutralised coherent opposition to the system.

Yet opposition grew, particularly as rates increased dramatically in the late 60s in  line with public demands for better services at local level. The system was manifestly unfair, with house owners in new estates on the urban fringes with few amenities paying the same or more than those in older more desirable (and wealthier) areas (contrast, e.g. Raheny with Ranelagh, or Tallaght with Terenure). The rates burden even had a marginal effect on house sales, inhibiting some trading up and also first time buyers from buying older houses. Calls for reform were common, but no one seemed able to come up with anything workable. The usual Irish wringing of hands took place as the rates bill mounted.

Then came the 1973 General Election. Fianna Fail, in power for 16 years, and which fought the election initially on security issues, was wrong-footed by  a joint pre-election programme from Fine Gael and Labour which inter alia proposed to cut domestic rates by transferring the health and education elements to central government funding (in anticipation of the first income transfers from Brussels). As the election date approached, Fianna Fail, in a cynical and desperate attempt to avoid defeat, announced that, if returned to power, it would abolish rates on domestic dwellings. The ploy didn’t work and Fianna Fail was defeated, but it was perfectly obvious that , next time round, rates would be gone. And so it proved; Fianna Fail swept back in the famous give away election of 1977 and domestic rates were abolished.

By the mid-80s a national hangover had replaced the party atmosphere of 1977 and attempts were made to claw back the worst excesses of Fianna Fail’s 1977 largesse.  Road tax on cars was reinstated. All parties baulked, however, at “bringing back rates” (such had been its burden on the ordinary taxpayer)and the eventual solution was the Residential Property Tax (RPT) , half-hearted and half-baked. The RPT aimed at NOT being a resurrection of Rates, and it certainly achieved that. It relied on self-assessment, there was widespread non-compliance and anecdotally  considerable cooperation at community and street level leading to coordinated under declarations of market value. The tax yield , accordingly fell far short of expectations, and, at a time when property values were static and marginal tax rates very high, the tax proved very unpopular. The Irish Times editorial last Monday quoted Albert Reynolds’ famous remark that “a delivery boy on a bicycle would identify more qualifying properties in Dublin 4 in half-an –hour than had been registered with the Revenue Commissioners for many years.” The  government of the day finally threw in the towel in 1997 and the tax was dropped, coincidentally as the economy was picking up and pressure on government finances was easing.

It’s worthwhile looking at the operation of the RPT; there is much to be learned from it. It was an annual tax, charged on the market value of residential property owned and occupied on the valuation date of 5 April at a rate of 1.5%. So far so good. However, the exemptions and the system of self-assessment robbed it of teeth. Anybody renting was exempt. A market value exemption limit applied, as did an income exemption limit. These  were set at surprisingly generous figures. In 1996 the “market value exemption” was £101,000 (roughly €130,000) and the ”income exemption” was £30,100 (roughly €38,000); it should be noted that this was broadly equivalent to the top of the civil service assistant principal pay scale at the time.  Marginal relief applied for those with incomes less than £40,100 (€50,000), roughly what a T.D. was paid, and, to cap it all, the final tax payable was reduced by 10% per child. Throw in a system of self-assessment, where anyone caught by the income  threshold could “value” their own property and it is not difficult to see why the RPT proved farcical. It was the ultimate self-delusional  “tax” approved by politicians determined to heed lobby groups and avoid public opprobrium and discontent.  The analogy with the camel designed by a committee is not far off the mark. Legislators and the expert-group- to- be- established take note!

The modalities of the property tax are to be worked on in the months to come in time for a report to be submitted to the Minister by next April. There is early dire speculation that some form of self-assessment may be employed.  Let us hope this is not the case.  The country can’t afford it. Moreover, a small team of public servants, dedicated to the task in hand, should be able to value the vast majority of properties in the country in a short period of time. It’s not rocket science! The suburb where I live has roughly 1500 dwelling units and several estate agents. Virtually every house and apartment could be value assessed, roughly, in a day by two people. This could be replicated throughout most of urban Ireland. Much of the work could be done on the phone and on the Internet. Whatever was left, the fine tuning, of non-estate houses, of “period properties”,  could, again be inked in fairly quickly, using value bands. We don’t have to get it right; just roughly right – the small print can take care of serious deviations from the norm later.

After the valuation there are the issues of geography and exemptions. The geography issue certainly presents political dilemmas. Should house owners in high value areas such as Dublin or Galway pay a premium for living there rather than elsewhere, particularly if incomes are the same  across the board?  Should the teacher in Malahide pay more than the teacher in Carrickmacross, who perhaps has a superior property? And if so – how much more? Well, that’s what we elect a government to do – take the hard decisions. Ditto with exemptions. They should be as few as possible. The notion that large swathes of the population should be consciously exempted is, again, something the country cannot afford. So far the omens on this are not good. The Universal Social Charge was an attempt to get everyone to pay at least a little, thereby inculcating a sense of ownership and civic duty in place of the existing culture of entitlement and away from the notion that someone else would or should pay. However, the recent budget , by raising the income  threshold for payment, reversed much of this. Special pleading from or on behalf of the usual groups for exemption from the property tax can be anticipated. More in hope than expectation I would urge that this be resisted. Generally, perhaps a leaf could be taken from the old Rates’ practice of phasing in the full amount over a number of years!

A SHOT IN THE FOOT BUDGET

  Nobody ever said it would be easy trying to pick up the pieces from the wreckage left by Fianna Fail. Yet, incredibly, the new Government, less than a year into its term, has managed to dissipate most of the public good will with which it took office. The benefit of the doubt has been diminishing as the months passed, and took  a severe denting with the Budget on 5 and 6 December. The Fine Gael Labour Coalition now has owner ship of the mess. It could justifiably be described as a Shot in the Foot Budget.

Only the naïve expected that Ireland’s economic difficulties would disappear with the arrival of the new Government and only the totally naïve believed the  (separate ) pre-election promises of Fine Gael and Labour. Yet what was expected was at least a new approach, the wielding of a new broom and an end to favouritism and cronyism. Certainly there was a beginning,  with some token cuts and announcements of more substantial ones to come. There was also some progress to report on the cost of servicing Ireland’s debt, claimed as a victory. There were signs that relations with our partners in Europe – which had become strained – were improving.

However, as the months passed, the impetus seemed to flag. Fianna Fail as  a scapegoat for the state of things  was useful for a while, and when the potency  of that excuse diminished, the blame was shifted to the ECB and the IMF. The Government was hamstrung by the terms of the bailout –true enough – but bad-mouthing the institutions actually lending us the money to keep the country going when no one else would lend to us rang somewhat hollow.

(An aside here on our “loss of sovereignty”. Arguably we have NOT “lost” our sovereignty. We are receiving money from the EU/ECB and the IMF on foot of a memorandum of understanding. Our compliance with the terms of this is monitored at three monthly intervals  and the next tranche of money is advanced on the strength of the monitors’ report. We can, at any time, tear up the memorandum and tell these institutions where to go. We are then free, as a sovereign state, to borrow on the open market. All fine in theory; the only problem is that no one will lend us money on the open market; which is why we signed the bailout deal in the first place! The line that we will have our sovereignty restored when we have bid goodbye to the IMF and the EU/ECB and can again “borrow on the open market” is disingenuous. We can try the “open market” at any time –and then try to balance our books when no institution will lend to a country that spends one third more than it earns. We haven’t lost our sovereignty; we have lost our ability to borrow money!)

Then there were public appointments. One of the enduring afflictions to the efficient functioning of the Irish state over the past two decades has been the proliferation of quangos, at huge cost to the taxpayer,  siphoning off many of the core functions of government departments. This suited politicians in two ways: it provided a convenient excuse where something went awry (“I can’t do anything because the powers are delegated to the quango”), and it provided a ready means of patronage to followers through appointments to state boards. Shamefully, the outgoing Fianna Fail government continued to make such appointments even after its thrashing at the polls, right down to the installation of the new government.

Bruce Arnold has pointed out that some quangos are now doing  a job, at considerable expense to the taxpayer, formerly done quite adequately by one or two middle-ranking civil servants at minimal cost. I hasten to add not all quangos, though another promise by the incoming government was to cut their number so clearly others share my views.  One particularly irritating practice is that by some quangos of quoting or referring to the operation of other quangos, rather like a small office which does nothing except administer itself..

While there was some cosmetic attempts at reform, with more promised, over the past few months the public (those not appointed  to the boards of quangos) have come to realise that business was continuing as usual, except that the new appointees were in many cases government supporters replacing nominees of the former government. The fate of unsuccessful presidential candidate Mary Davis –dubbed the “Quango Queen” – should have alerted the government to public sentiment on that issue.

The lost referendum was another warning sign. It was all very well to indulge in a populist line when it came to putting the boot into the judiciary in the other referendum, quite a different matter to propose an amendment giving, on the face of it, more power to politicians, in this case to investigate alleged wrongdoings. While the thrust of the government’s line was that this would enable, at last, the public to get to the bottom of who was responsible for the whole banking fiasco, the public were not convinced. There had been over two years of hand-wringing by the previous lot; now, instead of meeting public demands that action be taken against those responsible, whether by fresh legislation or by allocating sufficient resources to the current investigations to ensure a speedy outcome, the new government was proposing to grant politicians even more powers, without thinking matters through or ascertaining what the public wanted through a public debate. The reaction of the government to an open letter from eight former attorneys general – of all political persuasions – smacked of hubris and the referendum was probably lost at that point.

Next the “special advisers”.  Like quangos, these have proliferated over the past two decades. Ministers, of course, have always had one or two favourites, usually drawn from the civil service, to keep an ear open on their boss’s behalf. One theoretical reason advanced was to prevent the Sir Humphreys in the system running rings round their political masters. Some of these advisers morphed into “programme managers” –remember them ? – whose function was to deal with mundane matters , leaving the politicians to concentrate on the more weighty issues (!). Increasingly these special advisers have come from outside, either from party ranks or at least party supporters. The additional justification, that they provided expertise not available within Departmental ranks, with very few exceptions, rings hollow.

Whatever their merits, the issue this year has been what to pay them. They don’t come cheap. The new government bravely announced a cap, actually corresponding to the fairly generous top of the Principal Officer scale – €92,000 euro. (For those not au fait, principal officers are at the upper tier of middle management  in the service; there are roughly 600 of them  in the civil service proper, spread among the departments and including a number of our ambassadors.) The fun started when this salary proved unattractive and pleas for higher salaries ( to be granted in exceptional circumstances by Ministers  Howlin and Noonan) were advanced. The issue simmered through the summer months with occasional revelations in the media about first one, then another exception. Altogether there are around 40 special advisers to Ministers, costing €3.6 million annually.

Then, with exquisite timing, a story broke on the eve of the budget, that a salary considerably larger than the upper limit , €127,000, or 38% over the cap, had been sanctioned for one adviser , over the objections of the deciding ministers, at the behest of the Taoiseach. His “state of the nation” address later that day, with its solemn hair shirt and belt – tightening tone, did not sit well against such a background.

But worse was to come with the Budget itself. The process of drawing up the Budget should be relatively straight forward, though not easy – particularly where there are deep cuts to be achieved. The guiding principle should be, and usually is,  the eleventh commandment for any civil servant, i.e. “Though shalt not drop your Minister in the merde”. The politically safest method is the broad brush approach – an across the board increase in tax or excise, or cuts in social welfare rates or tax allowances. The important point is that there should be few, or no, exceptions. There will be general grumbling, but a feeling that the hardship is being shared around. Straying from this approach is fraught with political danger.

This Budget had to achieve savings of €3.6 billion by additional taxation and spending cuts. However,  it was hamstrung from the start thanks to an extraordinary public commitment by the two Coalition leaders, given after 100 days in office, that there would be no income tax increases or reductions in the basic rates of social welfare payments. This ruled out inter alia any strategic repositioning of policy on child benefit – still not means tested – or on a third rate of tax on the higher paid. The Taoiseach and Tanaiste should perhaps have reflected that Napoleon’s “hundred days” ended at Waterloo.

Given our financial and budgetary situation this commitment  made no sense – except perhaps to cement politically the Coalition. Hints and leaks in recent weeks indicated some resiling from this stance, with a cut of €10 euro in child benefit among the suggestions floated, together with 2% on VAT and  a new property tax of €100 per dwelling across the board (a wedge thin-end if ever there was one). Then, suddenly, a reverse thrust on child benefit. Given that Social Welfare was still required to find considerable savings, i.e. cuts, clearly there was potential for trouble.

When advocating cutbacks some careful and sensitive attention to detail is required, as quite often some landmine can either go unnoticed or its potential effect be discounted. Thus in 1977 car tax was actually doubled, as the base for calculating engine capacity was changed from horsepower to cubic centimetres. Garret told me later that no one in Cabinet spotted the huge resulting increase in advance. Fianna Fail rode to power soon afterwards on a vote-buying platform that included the abolition(!) of most car tax. More recently, in 2008, Fianna Fail scored a major own goal when seeking to remove automatic medical cards from the over-70s. They  succeeded, something many have not taken on board ; there is now an income ceiling, which could be reduced, were there a government with the cojones to do so – but it cost the party much public support.

This year Social Welfare found another landmine . Buried in the middle of a host of minor targeted cuts, including reductions in winter fuel allowance and differential levels of child benefit for larger families,  was a large reduction in payments to  young disabled people between 16 and 18. Incredibly it was to achieve savings of €7 million, miniscule in a budget of €20 billion, but a very considerable cut in income for the individuals concerned (and their families). In vain did Ministers seek to defend the cuts as rationalising, or as bringing uniformity to all teen recipients. Given that many or most of those affected would never realistically  be “job seekers” – the next stage, at 18 – these excuses cut no ice.

To give the government its due, this cut was rapidly put on hold and is now dead in the water, but the damage has been done. Other  groups affected by cuts are now crying foul, and even if the government keeps its nerve, it is now portrayed as in effect no better than its predecessor. Moreover, as the small print gets pored over, other nasty surprises are being found, some of which make little or no economic or social sense. All could have been avoided had the government proceeded with the child benefit cut originally mooted. Moreover, this year was only the start. Bigger and deeper cuts are promised for the next two years at the very minimum and there is unlikely to be any more handing back  as was done this time by raising the exemption limit for the Universal Social Charge. To cap it all, as the row unfolded,  came the revelation that  Minister Burton’s special adviser had received special sanction for  a salary of €128,000 pa; it was not her lucky week.

The Coalition held, with only one extra defection. But already pundits are asking when will the breaking point be reached. Commentators and critics are focussing more and more on the public sector, and questioning the relevance -and cost- of the Croke Park Agreement. It was scheduled to last until 2014 but already there is talk of an early review. If the choice is between a 10% cut in welfare rates and a 10% cut in public sector pay and pensions I know where I would put my money. Sadly however, both may become necessary. Meanwhile Ireland continues to clock up over a billion each month in extra borrowing just to keep the country going. We should thank our stars that the EU and IMF continue to provide credit.

BIG BOYS GAMES

N.B. I wrote this piece before opening this morning (Saturday)’s Financial Times. Read the editorial. Suffice it to say that Great Minds genuinely do think alike!

It’s been quite a week. First there was the Budget, on which I’m writing separately, in and around which the Coalition managed to squander most of its remaining store of public goodwill. Then came the European Council in and around which ( a Stickley: if you find a good phrase, repeat it) the dust has only begun to settle.

Let’s take Europe first, since what happens to the Euro will determine our fate. Those who harbour any  residual anti British feelings should pause for a moment before rejoicing at Britain’s current isolation. If it becomes permanent, one collateral result, not so far appreciated, will be that Ireland will have lost her heavy-hitter champion against tax harmonisation. In that case – good luck to the Irish negotiators at the forthcoming IGC; they’ll need it!

It is, of course, far too early to predict how relations between Britain and the rest will develop. Remember the “Empty Chair” crisis within the Six in 1965 when De Gaulle’s France boycotted all EC business over attempts to extend the scope of qualified majority voting. The crisis was solved only with the Luxembourg Compromise under which a decision could be postponed where vital national interests were cited.(During the 80s Garret secured an increased milk quota for Ireland, with, admittedly, the goodwill of the rest, by citing a vital national interest.) Any bets on another Luxembourg-style compromise emerging? The gung-ho Tory anti-marketeers may be rejoicing now but there are many more thoughtful voices still to be heard from what remains Ireland’s most important economic and political partner.

However, what happened in Brussels should have two beneficial results here from the point of view of reality checks. Firstly at a political level the outcome  has demonstrated that , in principle, one country CAN be left behind by the others where they feel there is a compelling reason to do so. This should be kept in mind if we are called upon to vote on a new treaty. As I wrote last week, it will not be Nice; it will not be Lisbon. The stakes will be that much higher. We will not be able to sit smugly on our imagined veto. We could be left behind in our minority of one. This needs to be placed at the centre of any public debate on how we decide our position.

Secondly, the proceedings and the outcome should demonstrate that these meetings are NOT about Ireland and that our concerns, important as they appear to us, are peripheral  to the whole picture. The Germans and the French are not out to do a number on us; they are trying to grope towards a solution that will endure. It is very much in our interest to support them in this by engaging constructively in the process. We may or may not benefit from a new and enduring fiscal and financial architecture should one emerge. We shall certainly NOT benefit should efforts in this direction fail.

Only time will tell whether the Brussels outcome will be sufficient to save the Euro even in the short term. The details and the small print have yet to be analysed. Whether the agreement on closer fiscal cooperation to be cemented in several months will satisfy the markets on the separate but inextricably linked and more immediate issue of liquidity will become clear over the coming weeks. There may have to be yet another summit shortly if the markets give the thumbs down. But what are the options?  Is there any workable alternative to expanding greatly the role of the ECB, as more are suggesting?