July First could prove to be a watershed for this government and for the Irish economy. At the very moment the right decisions are put into force, the government may be signing its own death sentence.

Recent opinion polls show growing disenchantment with the government’s performance. Labour in particular are taking a battering, with suggestions that a poll now would see them lose up to two third of their seats. The most striking feature of the polls, however, has been the one third undecided, for which read disenchanted with the current lot but not convinced the other lot will be any better. This loss of support was probably inevitable, given the tough measures necessary to get the job done.

The Government has attempted to talk up its recent achievement regarding the bank promissory notes after getting the nod from Euro partners to reschedule the annual payments over several decades rather than one.

Finance Minister Noonan tried to over-egg the pudding by suggesting that a repetition of the cumulative inflation of the last four decades would eliminate entirely any future burden of repayment, a scenario that is not only totally speculative but flies in the face of stated ECB – and German – policy. It didn’t matter. The opposition realised that it had lost one of its major government-beating sticks and failed to drum up indignation about the long term burden of debt. ( Cue Lord Keynes: “ In the long run, we’re dead.”)

However, while the deal can be judged a success, the issue was essentially a red herring compared to the problem of the budget deficit proper. The bank debt deal has freed the government to concentrate on this, but it is not a vote winner. The pressing need to do something on this has been exacerbated by the continued sluggish state of the Irish – and world – economy.

The gap between what we take in taxes and pay out to run the country remains dismayingly large. In the real world the gap can be bridged only by cutting expenditure and/or raising realistic taxes. The two years of the Coalition have shown how difficult it has been to do either. No solution is easy. The battle lines are now being drawn, with Sinn Fein firmly in the camp of the socialists and fellow travellers on the left with demands to bridge the gap by punitive taxes on all those earning €100,000 plus per year, with a wealth tax to boot.

Precisely who would pay the wealth tax or how it would be constituted remains a mystery. Apparently, family homes and farms would be excluded for a start, thus exempting most of the population. “ Not me” is the rallying cry for the left for whom the notion of such a tax has great appeal, with the implication that there is a great swathe of wealth out there which can be raided, saving everyone else pain.

Two new taxes are already on the cards. The property tax, commencing July First, is a big step, if fraught with political danger. A water charge is to follow sometime in 2004. The property tax payable will depend on the revenue-assessed market value of the property, something which will bear most heavily in Doblin and the east, with people living in modest houses in Dublin paying more than persons with far superior houses who live in rural areas. Both these measures, predictably, are opposed by the left.

The real impact of the property tax will not be felt until the full year kicks in 2014. There are no signs so far of the government caving in to special pleading with no nonsense about wholesale exemptions, and the Revenue Commissioners being given sweeping powers, including raiding bank accounts and attaching as necessary wages and welfare payments. With these new taxes the government has signalled that the direct taxation limit has been reached, though only time will tell on that one.

Which leaves cutting. On the welfare side child benefit has been cut again, with a trial balloon of further cuts floated. A melange of welfare and health cuts have also been announced, some quite harrowing in their impact on marginal groups, to be phased in over the year with some to impact from I July. The sacred cows of unemployment assistance (roughly $240 per week ad infinitum) and the old age pension (coming in at close to $300 per week for a single person) have been left alone, for the moment at least.

The other big component of expenditure, public sector pay and pensions was thought inviolate until next year under the Croke Park Agreement but the government has now moved to renegotiate. As I write the public sector unions are considering an offer which will be difficult to refuse, given that refusal will lead to more savage and wide ranging emergency legislation.

The package includes changes in working conditions and some allowances together with salary cuts from 5% upwards on anyone earning over €65,000 per year, i.e. middle management and up; the package again to come into effect on July First. For those affected, many of the middle class backbone of the country, July One will mean, therefore, a double whammy with pay cuts on top of the new property tax. The carrot on offer is that there will be no fresh demands until 2016 – i.e. coinciding with the next election. Again, this should perhaps be taken with a dose of Lot’s wife.

Several other issues are set to come up before July including inter alia the abortion issue which seems likely to test the mettle of the government . More ominously, as the mortgage arrears crisis continues to intensify, the government has signalled its intention of introducing legislation shortly to close off a loophole which has thus far prevented the banks from repossessing properties.

Initially the target will be those properties to let which are in arrears but miscellaneous cross guarantees suggest that, inevitably, family homes will come under threat at some point, perhaps sooner rather than later. So far the authorities have eschewed lateral thinking on the issue but at the very least the government courts more unpopularity by its apparent tough line attitude on this.

The problem the government faces overall is that much still remains to be done economically, which means more pain, piled on top of the pain already suffered, even as the countdown to the next election begins. Last year moreover it got the benefit of the doubt. This year it is being called to account on its election promises on governance. While nobody expected miracles, the record to date on issues such as public appointments and the closure of quangos is disappointing, to put it mildly, with no discernible difference from Fianna Fail’s performance.

Machiavelli prescribed taking the harsh decisions early on and some have argued that the Coalition should have been tougher at the start. Perhaps, but politics is the art of the possible and there was, after all, the fig leaf of the programme for government. Too much too soon might have frightened the horses. The trouble is, it’s now year three, and they’re taking fright in any event.


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