A SHOT IN THE FOOT BUDGET

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.