2012. The Centenary of the Titanic! Let’s hope that won’t become a metaphor for Ireland or the EU this year. The actual anniversary of the sinking is mid-April. By then  we should know some details of  the proposals to save the Euro, and even whether Ireland will need a referendum to address the issue. If yes (which is my guess – if only to satisfy public demand) then winning it  becomes the political priority  for the Government.

There are  plans already for two referenda this year, one on the future of the Seanad, another on the rights of the child. Both would be popular, including from the government’s point of view (i.e. winnable) . But neither are priorities, particularly that on the Seanad; that can wait, and no energy or resources should be put into it. The child referendum issue is important, certainly, and  if one can be held , so much the better. But if there is to be a referendum on the Euro, this must assume priority. Should the Euro collapse, or should Ireland be left behind by a no vote, the  future rights of the child will be among the least of our worries.

Parking Europe, coping with Ireland’s debts is the government’s on-going domestic priority. The end of year financial figures for 2011 are now in and make for grim reading. The good news is that tax revenue has stabilised at around €34 billion (roughly $45 billion),or about the amount raised in 2004; for reference, in 2007 it was $61  billion. The bad news, however, is that expenditure for 2011 was almost $33 billion more . Even stripping out all payments to the banks (most of them once –off), the net current deficit   only actually fell  to around $21 billion. This after five severe budgets. The day to day cost of  running  the country  was some $62 billion while interest payments on the total debt were around €7 billion. Not even Mark Twain could do much about these figures.

By the Titanic anniversary  Ireland will have borrowed a further $5 billion in 2012, just to keep the country running. This has nothing to do with the bank bailout. This is the gap (roughly $400 million every week) between what the government  raises in taxes and spends on state salaries and pensions, child benefit, unemployment assistance, lone parent allowances, creaking health and education services, old age pensions and, a growth item, interest payments on the growing national debt. Clearly something must be done. Ireland cannot continue to borrow at this rate.

The government’s strategy, like that of its shell-shocked predecessor, is not to set about reducing  spending to 2004 levels in order bring finances into balance. Politics is, after all, the art of the possible. Expectations are far higher than in 2004. And a warped sense of entitlement among the public, massaged over the years by politicians, makes reconciling income with expenditure more difficult still. Expenditure and welfare payments remain  too high for the size of the economy. The gigantic red herring of the bank bailout has warped and distracted from the reality. The definable target is to get the deficit down to a “manageable” 3%, whenever.  This involves paring away at spending, while seeking to build up the tax base, incrementally,  hoping  that an economic pickup, will increase employment and tax revenue while reducing unemployment costs.

The EU and IMF, who are supplying the $400 million per week – no one else would – have bought into this, which relies on optimistic growth assumptions about the Irish and world economies. The government  will cut what it can (i.e. what is politically palatable), increase taxes where it can (again, what is palatable), cross its fingers and hope to meet the target about half way if the economy picks up. That is a very big if. Meanwhile the total owing  will grow by $24 billion this year and, even, on the government’s own optimistic projections, will continue to grow by $18 billion in 2013 and roughly $12 billion in 2014. Interest on the total debt in 2015 will be around $12 billion. Any double dip recession worldwide will see these figures worsen.

Meeting these targets, moreover, will require a succession of severe budgets, for which read more cuts and more taxes, on top of the five we have had since 2008. Frankly the omens are not good. While the 2012 budget was passed, and the ownership of economic  policy is now firmly that of the current government, it was not without hiccup and a subsequent serious dent in the government’s popularity. The budget, not something to marvel over, has already been criticised externally for taking the easy option of front loading capital expenditure cuts, packing them into 2012, despite their direct effect on employment.

There is more. To a great extent the Labour tail seems to have wagged the Fine Gael dog. The broad brush stroke approach of benefit cuts was dodged, the anticipated rise in third level registration fees was halved, and  the threshold for paying the Universal Social Charge was hiked – three strikes for Labour.  VAT and motor tax rates were increased as the major sources of additional revenue .  Again, sops to Labour since there is no VAT on most foodstuffs, and the impact  for the most part will fall on persons with higher  incomes.

All Fine Gael could point to was holding the line on income tax rates and tax bands together with a flat rate property tax of €100 per household. This last has been greeted with howls of protest from the opposition and the government is running scared enough to have flagged its intention to introduce a graduated property tax ( those in better homes paying more) earlier than intended. Clearly there is a fear that  some Labour horses – and even some Fine Gael ones – may bolt.

Moreover, failure to grasp the big nettles of benefit cuts and public sector pay and pensions entailed many minor, politically embarrassing, and damaging cuts throughout the rest of the budget to achieve the necessary overall targets. Notable here was a proposed savage cut in payments to handicapped 16 and 17 year olds, yielding peanuts financially, and less than twice the cost of the salaries of Ministerial special advisers. The government at least had the cop-on to drop this proposal forthwith. Almost equally damaging were cuts in small grant assisted local and community projects, which, as well as being targeted at the socially disadvantaged, took people off the dole.

The next budget could be make or break. All the easy choices have been taken. On the plus side more politicians and academics have been speaking out and laying emphasis on the need to do something about the structural deficit. Hopefully this will trickle down into the public consciousness sooner rather than later, to shake the sense of entitlement. On the negative side  the dark matter of  a referendum  on the Euro lies just below the horizon. Like an iceberg . Basil Fawlty once remarked “Piece of Cake; now for the hard bit.” These sentiments may well be echoed by the government  come midsummer.


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