RUNNING OUT OF WIGGLE ROOM 1210 XLIV

“RUNNING OUT OF WIGGLE ROOM: SAUVE QUI PEUT

Who’d want to be a Government back bencher? Politics has resumed with a bang of kiloton magnitude. The period since the last election eighteen months ago now appears to resemble a phoney war. It’s as if the Government has suddenly woken up to the reality of what most of the doomsayers have been pronouncing over the past year. There’s nothing new, just that it has now penetrated that what was critical but not serious has now become deadly serious.

Since the summer break there has been speculation that the Government would not survive the year, for which read December’s budget. We shall see. The main cement holding it together has been the firm resolve of the two party hierarchies not to rock the boat by undermining the carefully constructed and fairly anodyne Programme for Government, with the recognition that failure to hang together may result in the parties hanging separately, such is the volatility of public opinion.

The stresses and strains have been building for some time. Government backbenchers have been worried since last December’s budget with the realisation that it would be a long time before there were loaves and fishes to hand out. It has now dawned that the reality will actually have to be the opposite: distributing demand and pay –up notices for increased and new taxes to the voters just to try to bridge the budget gap. Not an ideal platform on which to seek re-election.

The hostile reaction to transitory charges for a household property tax (continued massive non-compliance) and a rural septic tank registration fee (compliance derisory) has provided them with further food for thought while the mega threat of the pending property tax looms. Indeed the Government has been obliged to downplay the likely amount of the tax, suggesting an average figure of around $500 per house from July 1 2013. The devil will be in the detail, with the main battle lines to be drawn over who is to be exempt and what the rural/urban balance will be – any value based tax would discriminate heavily against those living in Dublin.

Since not all of the largest group of government backbenchers in the country’s history could expect to retain their seats next time round, there has been the additional shock of the recently announced mandatory constituency revisions. Many constituencies have been redrawn and the number of seats reduced by eight. The result has left a large number of government deputies less than gruntled, something likely to be reflected in increasing grass roots discontent directed upwards.

There will be much to be discontented about. Three and a half billion Euro for next year has to be found in December, two thirds through spending cuts, one third in higher and new taxes. The easy expenditure targets were hit last year. The cliché is there is now no low hanging fruit. The recent outrage at proposed cuts of $180 million in home help services to the handicapped and the house bound just to balance this year’s health budget is only a foretaste. Far more savage cuts will be needed particularly in the big spending departments of Health Education and Social Protection (Welfare) to achieve the 2013 target figure for cuts.

With all public expenditure to be scrutinised for possible cuts, there has been renewed focus on the three sacred cows anointed in the Programme for Government: no changes in public sector pay and pensions, basic income tax rates and basic social welfare payments. The IMF has joined with many domestic commentators to advocate tackling these in some form.

Public sector pay and pensions took a hit several years ago but are protected until the end of 2014 under the Croke Park Agreement. With 70% plus of the health and education budgets going on salaries alone a number of Ministerial voices, from both parties, have been heard recently calling for the agreement to be revisited, under its get out of jail clause, the rationale being that public servants have guaranteed employment and are better placed to take a hit. While the agreement has been staunchly supported by Labour, cutting public sector pay as an alternative to cutting core health and education services has an obvious appeal. One thing is certain; if they survive unscathed in this year’s budget, public sector pay levels will be the prime target for the cuts due at the end of 2013.

The commitment not to increase basic income tax rates, championed in large part by Fine Gael, is likely to be maintained, though there may be some tweaking of bands to ensure that more people pay tax and those already paying pay more. The reality however is that the other tax hikes and promised new taxes are likely to be borne overwhelmingly by the “coping classes,” those already in the income tax net and who pay for everything and who can do little about it. There is therefore little scope for squeezing more out of this particular constituency by a simple tax hike.

The Government’s stand on maintaining social welfare payments at their existing generous levels is beginning to look threadbare, particularly where some of the benefits are universal and not means tested. The spectacle of protesters in wheelchairs outside a government meeting over proposed cuts of a few million does not sit well with the reality of large child benefit payments to hundreds of thousands of recipients, many of them comfortably off.

The current government has up to now wrung its hands at proposals to means test or tax child benefit, fearful of adverse public reaction but its mettle is likely to be sorely tested this time round. The radical solution, to deduct tax at the standard rate before payment, and exempt the less well off, is still a step too far, but some shaving of the amounts, justified semantically, is likely to be the outcome. Ditto with regard to job seeker’s allowance, where the existence of poverty traps for low paid workers may impel some reduction for those who are better off on the dole. Certainly the Social Protection budget will come under great pressure.

The last great sacred cow, the package of benefits given to the elderly, many without means testing, is also coming under scrutiny. It’s unlikely that the state pension will actually be reduced; the last reduction, in 1931, has entered Irish political folklore as the ultimate No No. But another attempt to means test medical cards for the elderly and some restriction on free travel seems likely.

All this has to be thrashed out before December and already the pressure groups seeking to protect their part of the status quo are up and running. One is reminded of Bernard Shaw’s observation that, if you rob Peter to pay Paul, you can rely on the support of Paul.

This is even before the already signalled additional taxes – to make up the $ 1.5 billion total – are considered. Here, apart from hikes in drinks, cigarettes and fuel, vehicle tax will be revamped – upwards . There may be further tinkering with VAT rates; who knows what else will be in the small print. Who’d want to be a Government backbencher!”
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