Month: July 2013

A WATERSHED DATE?

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.

WINDOWS ON THE PAST

I wrote last time about Europe and the impact four decades of EU membership has had.

Three things recently have demonstrated just how much Ireland has changed. The first is the newly released report on the Magdalen Laundries. The other two relate to books I was asked to review, one fiction, one non-fiction.

The Magdalen Laundries were run by several Orders of Nuns throughout Ireland for most of the Twentieth Century, the last closing only in 1997. Their heyday was up to the 1970s. The laundry workers were exclusively women and girls who were housed on the premises, were unpaid and subject to a strict regime including long silences and much prayer. Originally they were intended for “ fallen women”, i.e. prostitutes or single women who became pregnant at a time when single parenting was frowned upon and many of the women ostracised, even by their own families.

Later, girls from broken homes or who were judged to be disruptive were lodged in the laundries. Considerable numbers of minors or adolescents were sent to the homes by their families. Myths abounded, particularly against the background of revelations of widespread sexual abuse by Catholic religious which surfaced in the 1980s, culminating in several reports which detailed the dreadful physical, sexual and emotional abuse meted out to children in state financed institutions and orphanages.

The Government commissioned a working group of civil servants to ascertain the level of state involvement in the laundries, including whether the state had sent girls in its care into what were in effect workhouses. Its report, still being digested as I write, though less awful than had been anticipated, exposed yet another sad aspect of Irish society in the last century.

Some (8%) had certainly been committed by the state, quite often in the belief that the laundries were a better alternative to prison, but, for most inmates, entry had been “voluntary”, prompted by family, friends, or do gooders, and they had, in theory been free to leave at any time. The problem was that no one appears to have made this clear to the women involved, and while typically the period spent at what was in effect hard labour was around seven months, many women spent years incarcerated, some becoming institutionalised, and many more emotionally scarred and unprepared for life outside.

The report is there to be read. The point to register is that the laundries could never happen in today’s Ireland. They represent yet another example of the failure of the Irish state for most of the last century, by commission or omission, to look out for some of its most vulnerable charges. Ireland was not a place for the marginalised to find state support. And, arguably, official policy (or lack of it) reflected the popular view; out of sight, out of mind- someone else’s problem.

An interesting portrait of the background to that vanished Ireland can be found in the recently released atmospheric thriller, “ City of Shadows” by Michael Russell. Set in the Dublin of the 1930s, the story opens with John McCormack singing at the 1932 Eucharistic Congress Mass in the Phoenix Park in 1932, an event widely regarded as the high point of resurgent Catholicism in 20th Century Ireland. There are particularly evocative scenes of the Dublin of the time.

The book offers fascinating insights into Irish society and the politics of the newly independent state at a time when the institutions of state were still bedding down and democracy was under threat. De Valera, Eoin O’Duffy and the Blue Shirts, the Broy Harriers, are all there, with constant reminders that the civil war was in the very recent past and that violence still lurked just below the surface.

The powerful and all pervasive influence of the Catholic Church, exercised through devices such as the Ne Temere decree and supported by the activities of its right wing civilian supporters, dominated the scene, while under the surface there was another Ireland, with a covert gay scene and cupboard skeletons of many, epitomised in an abortion clinic, fashionably located, for the rich and powerful. The book even has a visit to a Magdalen laundry.

A no less revealing screenshot of that Ireland is to be found in a very different new book, “Suddenly, While Abroad,” which traces the misfortunes of a group of Irish merchant seamen, captured by the Nazis during the early part of the Second World War when the British vessels they were sailing on were sunk. Sub-titled” Hitler’s Irish Slaves” the book narrates how and why the 32 seamen were segregated out from thousands of captive civilian sailors to be pressurised into working for the Nazis. When they stubbornly refused they were eventually handed over to the SS and sent to a concentration/labour camp near Bremen in North Germany, to be worked as slaves until the war ended.

The book does not make for easy reading. Over 50% of the 100,000 sent to the Neuengamme camps died there and the atrocities committed against the Russian, Jewish and Polish inmates, including some children sent by Mengele for experiments, are stomach churning and beggar belief. Five of the Irish died – four from typhus. The other, William Hutchinson Knox, from Dun Laoghaire, aged 59, a relative of the author, died in the Farge concentration camp in March 1945 after five years in captivity, following an operation, performed without anaesthetic, with four of his Irish comrades holding him down.

The War was a titanic struggle which saw the German war machine eventually overcome, at enormous human cost, by a coalition of most of the world powers. We know the imperfect world that emerged from it. This book, with its nightmarish accounts, offers a glimpse of what might have been had the Nazis won.

Ireland managed to stay neutral in the conflict, ultimately because she was peripheral to the war aims and interests of the combatants. This neutrality, while it definitely had a pro-allied bias, with tens of thousands of Irish serving in the British army, is now presented as the ultimate affirmation of Irish sovereignty and independence.

But one facet of it was a stultifying censorship regime, which kept most Irish in ignorance of what was happening. Post war, there were many holocaust deniers to be heard. The official line regarding army deserters, many of whom joined the British army, was to prosecute, punish financially and blacklist from future state employment many thousands under the “Starvation Order.”

Irish neutrality may not have helped the merchant seamen’s plight. It certainly led to them being singled out as a group; some Nazis believed that many Irish were anti-British and arguably took it out on the sailors when they refused to serve. They were denied consular access for a long time and efforts to repatriate them – as happened with some other “neutral” seamen – came to nothing. When the survivors returned to Ireland they were ignored and remain unrecognised. While the book is critical of Irish government inaction, there were probably practical limits to what could be achieved in dealing with a criminal regime in the throes of collapse. But again, like the Magdalens, this took place in the past – another country. It would not happen today.

FOUR DECADES IN EUROPE

Politically 2013 promises to be another tough year. Not only does the economic situation present challenges, which could well torpedo the Coalition by year’s end, but on another front there is little doubt that Abortion will be the political issue for 2013 in Ireland.

In the wake of the Halappanavar tragedy the government has announced its intention to legislate to fill the gap following the Supreme Court decision in the X case twenty years ago. The first public hearings took place in early January. The battle lines are being drawn. The Church and the pro-life lobby have already set out their stall. At least one expert witness has pointed out that it would be a very different debate were Britain, where abortion is legal, not so close. Could another emotive and divisive referendum be on the cards?

As if that were not enough, for the first half of 2013 Ireland has the six month Presidency of the EU. While arguably this will provide Ministers with some easy and positive publicity and afford a welcome relief from the unremitting pressure of the economic situation, it is also a distraction with Ireland tasked with advancing some serious, if not critical, issues for Europe. These include trying to get agreement on the EU financial framework (i.e. budget) for the coming eight years .

This year also marks the fortieth anniversary of Ireland’s membership of the EU. Those decades merit a closer look for they have seen Ireland altered dramatically and irreversibly . It’s a very different Ireland now compared to 1973. The battered Ireland that joined the EC, as it then was, was a poorer, shabbier place than the vibrant and assertive country of today, current economic problems notwithstanding . There are many faults with the EU but overall, membership, and the partial pooling of sovereignty that went with it, have been of enormous benefit.

There was, of course, Europe’s money. Up to 1973 Ireland was overwhelmingly dependent on Britain as a trading partner, which included trying to sell our agricultural products into a country which pursued a cheap food policy. Access to the Common Agricultural Policy (the CAP) changed this. We now had a particularly heavy hitter batting for us – France – and Ireland’s agriculture and by extension, the economy, benefitted.

Then, beginning around 1980, a different flow of funds into the country began in the form of funding from the centre to the less prosperous regions. Historians of the future may well mark this development as the point when the EU began to evolve from merely a trading bloc to a future European super state.

This process culminated for Ireland in the political and economic bonanza of the early 90s which saw Ireland securing roughly $ ten billion for infrastructural development. Hence our roads and other improvements. Hence also the freeing up of revenues which were spent raising welfare and other benefits.

The EU itself underwent a sea change in the early nineties. German reunification generated politically a new emphasis on expansion of contacts in Central and Eastern Europe which led to the opening later of accession negotiations with a dozen prospective member states. Internally the creation of the Single European Market in1992 led to the removal of many internal barriers to the free movement of goods capital and labour between the member states.

The new Europe, now the Union, was acquiring the attributes of a supranational state. For Ireland, now riding the back of the Celtic Tiger, the Single Market generated new opportunities for trade, and investment poured in. For the first time Ireland had full employment, married women were coaxed into the labour market as never before and yet still there were labour shortages. Ireland began to experience immigration for the first time in centuries.

May 1st 2004, during Ireland’s last EU Presidency, saw the expansion of the EU from fifteen to twenty five countries. It was rightly regarded as a watershed date in modern European history and as ringing down the final curtain on the Second World War and the Cold War which followed. Eight of the new members were former Soviet satellites, most occupied by the Red Army for decades after 1945. Two more former satellites joined in 1997.

It was against the background of domestic labour shortages that the Government took the otherwise curious decision to permit immediate freedom of access to the Irish labour market to workers from the new Member States. The Accession Treaties provided for limits or restrictions on the movement of labour from the Accession States for up to seven years. This to allay fears among the fifteen at the prospect of unfettered access to the labour market for the new entrants.

Twelve of the fifteen states introduced restrictions for up to seven years. The three countries which did not were Britain, Ireland and Sweden. Sweden got relatively few immigrants. Britain and Ireland, which form a common travel area, got far more. Britain got roughly one million, relatively easily absorbed in a population of 60 million. Ireland received at least quarter of a million, not so easily absorbed in a population of just over four million. Factor in immigration from elsewhere and the last census showed a population of over four and a half million, with 12% non-nationals. We’re far from becoming a nation of immigrants but Ireland has certainly changed, changed utterly.

The immigrants came to work, for jobs were plentiful. The net result was to swell the Irish labour force by several hundred thousand, many working in the construction boom. The national hangover, now that the bubble is well and truly burst, has led to an unemployment level of around 14.6%, a staggering total of 430,000 odd signing on the live register, almost 10% of the total population. More worryingly, one in five Irish households includes an unemployed adult, the highest among 31 European countries. And without emigration, which has returned with a vengeance in the last two years the figures would be even worse.

The building boom was fuelled by a number of factors but none more so than another aspect of our EU membership, the availability of cheap credit obtained through Irish membership of the Eurozone. Ireland embraced the Euro from its inception. The attraction –lower interest rates – seems to have blinded those in power to the potential pitfalls as well as ignoring the fact that most of our trade was with non -Eurozone countries. Hubris? We’ve certainly paid for that one.

It would take several columns to do justice to the many positives we have derived from EU membership, particularly in the areas of equality, women’s rights and social reform. Quite often it has been the push or the prod from Brussels or the rulings of the European Court which has obliged reluctant Irish legislators to act.

But above and beyond all this, EU membership has helped Ireland mature as a country and a society. Before 1973 much of our identity was defined in terms of our relationship with Britain. EU membership has changed this, provided a new dimension. We may not be at the heart of Europe, whatever Irish politicians may claim, but Europe is at the heart of us.

“UNPICKING THE SPENDTHRIFT YEARS”

It’s an open question now how long the Irish government will last. That Ministers want to stay on is very clear. One of the axioms of Irish politics is that one day in government is worth a lifetime in opposition. The current coalition would echo this sentiment. However, after less than two years the cracks are becoming fissures. 2013 may not be make but it could be break.

With all the low fruit lopped off, December’s budget was always going to be difficult, particularly for Labour, the junior partner. The Programme for Government, hastily cobbled together after the election, gave significant incomprehensible economic hostages to fortune. These included the so-called triple lock of no welfare cuts, no cuts in public sector pay and pensions and no increases in income tax.
This at a time when Ireland, unable to borrow money from elsewhere to run the country, was in thrall to the IMF and the European Central Bank for loans to pay wages and welfare benefits. The quid pro quo was an austerity programme designed to reduce the country’s borrowing requirement to an acceptable level (I.e. one that potential future lenders would accept) over a number of years by annual cuts in expenditure and/or hikes in, and new, taxes.

This also in the light of some of the legacies of the Spendthrift Years, which had seen welfare rates and public sector pay levels hiked well above inflation, while income taxes were cut and large numbers exempted totally from paying any income tax. Underpinned by this largesse also was the evolution of a culture of entitlement and a failure to grasp that taxes are necessary to sustain a country and pay for benefits.

The Coalition, since coming into office, has twisted and turned, impaled uncomfortably on its self-constructed petard, and meanwhile borrowing about $1.5 billion each month just to keep going.

Something had to give, and in December’s Budget it did. On the positive side, though not welcomed by those who will have to pay it, a tough property tax was introduced, with, crucially, very few exemptions. Those who cannot pay will have the amounts owing tacked on as a future charge on their estate. Whether this drastic approach will ever be carried through, or survive some type of legal challenge, remains to be seen. But the proposal undercut the various lobby groups queuing up to demand exemptions. The introduction of the tax, by broadening the tax base, will dismantle the last of lunacies with which Fianna Fail bought the election in 1977.

On the welfare side the triple lock was finally broken with cuts, inter alia, in child benefit and the removal of a social insurance (PRSI) part exemption; this last is likely to produce howls of anger when people examine their pay packets in the New Year. The howls up to now have come over the cuts in child benefit and a separate 20% cut in the respite grant for carers, bringing it below $2000 annually. The carers’ cut saw wheelchair protests outside the Dail and a protest vote against by the Labour Party chairman, Colm Keaveney.

The cut in child benefit, including larger cuts for larger families, still leaves the basic rate at €130 (roughly$160) per month, and the benefit remains completely non means-tested or taxed. The benefit is paid equally to the child of a millionaire and to someone living in poverty. As long as this remains the case the benefit is fair game for further attention. Part of the emotional argument in favour of the status quo is that it is the only money the state pays to mothers, including those from the coping (and paying) middle classes. But with the state broke and one third of the benefit borrowed, increasing the country’s debt by the month, some realism is needed. An obvious solution would be to pay the benefit under deduction of tax at the standard rate, with those on the lowest incomes getting a top-up; while satisfying nobody, this at least would ensure that everybody got something and would remove future uncertainty.

As I write, Labour is in internal disarray and is taking a hammering in the polls, accused of breaking election promises. Labour Senators may even vote to delay the cuts. In vain have Labour’s leaders pointed out that the promises made were contingent on Labour forming the government, rather than becoming very much the junior party in the coalition. The notion of hanging together rather than separately appears now very much the glue holding Labour together and continuing in government. As 2013 advances, and as the real pain of the budget measures takes hold, the pressures within and without the party look set to increase.

For Fine Gael also, 2013 will bring problems, and not just those arising from the budget. For a very personal family tragedy in November has thrust the abortion debate into centre stage. When the furore over the budget has died down, the abortion issue is likely to dominate the political agenda during the first part of 2013.

In 1983 a pro-life amendment, acknowledging the right to life of the unborn “ with due regard to the equal right to life of the mother” was introduced into the constitution. Not surprisingly this wording was found to be unsatisfactory and vague and a succession of court cases and a number of further constitutional referendums have followed without altering materially the very limited conditions under which theoretically an abortion could be carried out .

Past debate has centered on what would constitute a sufficient threat to the life of a mother to justify a termination. An attempt in 2002 to strengthen the ban by preventing the risk of suicide being invoked as grounds for an abortion was only defeated by a miniscule 10,500 votes or 0.8% of those voting.

The Irish judiciary have criticised politicians for failing to enact legislation to give effect to Supreme Court rulings and a European Court ruling last summer increased pressure on the government. The matter was approached warily by Fine Gael which was and is known to be divided on the issue ; early action did not seem likely.

However, all this changed with revelations concerning the death of a young Indian dentist, Savita Halappanavar, on 28 October in Galway University Hospital. The case has received worldwide publicity. Mrs Halappanavar was 17 weeks pregnant when she began to miscarry. She is understood to have requested a termination which was refused and the miscarriage lasted three days. She died several days later. Enquiries are on-going, though not the public one demanded by her husband.

A wave of sympathy for the Halappanavars swept the country, with demands for early clarifying legislation. The argument is that, had there been no 1983 amendment, or had legislation been enacted over the last 20 years, clarifying threats to the mother’s health and life, this tragedy could have been avoided. The pro-lifers were put very much on the back foot. However, recent weeks have seen them rally. Voices are now urging “Festina lente.” 2013 promises to see yet another heated and emotional debate and the timing could be crucial. Hopefully there will be closure this time.”

BANKERS’ PAY PERFORMANCE AND PENSIONS

With yet another savage budget pending in early December there has been public indignation over recent revelations concerning the pay and pensions of Irish bankers and the initial hand wringing of the government on the issue. Hints have been dropped that the budget might contain something about bank pensions. The hard pressed ordinary taxpayer, facing further draconian taxes next year, will be watching closely.

This issue has the potential to upset the coalition in earnest and the government should handle it with great care. The public has been stoical thus far in the face of continued austerity, with most accepting that the fiscal gap has to be bridged, but the bankers have touched a raw nerve, exacerbated by separate disturbing reports of cuts in front line services such as home help.

Bankers already occupy a special place in the public’s demonology. Not only did they collectively wreck the economy, but the cost of bailing them out, $75 billion plus, has made our bad fiscal debt even worse. Anglo Irish Bank was fully nationalised, Allied Irish Bank is 98% funded by the state and most of the others have been taken into state care, with only Bank of Ireland off life support.

So the newspaper revelations last month that 76 bank officials were being paid over $350,000 in basic salaries, with 1700 bankers earning over $125,000, almost three times the current average Irish salary of $ 46,200, caused outrage. This was compounded by the discovery that a new executive at the IBRC (Anglo reconstituted) was on a package of $600,000 plus (sanctioned by the Irish Minister for Finance), one of 19 in the IBRC (most decidedly OUR bank) getting $350,000 plus. This in a state owned bank, in a broke country where only 10% have incomes over $125,000 and where the state pension is $15,000 a year for a single person.

There is worse. It has emerged that Allied Irish Banks, 98% funded by the state, channelled around $1.3 billion from its recapitalisation funds (taxpayers’ dollars) to plug the deficit in its pension fund. In response to some of the criticism, AIB bosses also confirmed that letters had been sent to some of their former senior executives asking them to return voluntarily portions of their pensions (In some cases $500,000 annually), with just one agreeing to reduce his annual pension to around $300,000. The IBRC, as it happens, has a pension fund fully funded (to 111%), one of the very few “defined benefit” pension funds in the country without a huge hole in it.

The banks have brazenly defended the mega-salaries as the going rate for the job, the suggestion being the recipients are worth it. Park for a moment the observation that banking is not rocket science and at the top hardly merits even half the amounts being paid. Park also the thought that , whatever justification there was for the banks in their former existence to reward their head honchos so handsomely, when they could screw their clients with abandon, they are now almost all totally dependent on the state. The bankers’ claim begs the question, in respect of the former and retired bankers who have walked off since 2008 with large pay-offs and huge pensions, whether these payments were deserved, given the unholy mess they created.

The banks’ recent performances merit at best the description of uncivil servants. Business credit has all but dried up. The banks’ strategy appears to be to hunker down until better times arrive. The financial regulator is not helping by the very strict regulatory regime now in force, but he can hardly be blamed for carrying out his job. The problem is that the justification for bailing them out then and keeping them on life support now was and is that the economy needed (needs) a functioning banking system. What the public sees is definitely not this -just the old system Mark II with very little changed and certainly not helping the economy.

To date the banks have gone softly on the mortgage crisis, with only a handful of repossessions/evictions. This is not altruism. The banks are coldly aware that to wield the big stick by pressing for repossessions, or forcing thousands of bankruptcies at present, would be a bridge too far and would galvanise the government into radical action. So, like Mickawber, they wait for something to turn up. There is no talk of debt forgiveness, with the banks, incredibly, bleating “moral hazard” (!). The new legislation to update Ireland’s antiquated bankruptcy laws will still leave the banks holding most of the aces and observers expect that they will use the new legislation when passed to justify getting tough with debtors – something to be watched.

The Government’s reaction on bankers’ pay was initially to plead impotence on the grounds that bankers’ severance packages were contracts entered into under the previous government and it was powerless to change them. (It is interesting that this line is somewhat similar to that taken regarding the Croke Park Agreement, though Croke Park has a get-out-of-jail clause – not yet invoked.) When challenged, there were vague references to the Constitution and the suggestion that any attempt to renegotiate would risk a legal challenge. There were similar reservations in the 90s expressed about the Criminal Assets Bureau legislation , which however was found to be constitutional; this might provide inspiration. Such has been the public furore, that, as I write, the Government has shifted tack and is now admitting that the issue will be addressed.

Critics argue that the Government is afraid to go after the bankers’ pensions lest it open a Pandora’s Box out of which anything and everything could be challenged, not least the pay, pensions and benefits enjoyed by the politicians, and Ministers in particular. Taoiseach Enda Kenny earns more than the British Prime Minister, as, indeed, do the rest of the Cabinet. The levels of additional ministerial benefits are also generous and have come under recent media scrutiny, while the separate pension arrangements for all politicians are regarded, somewhat unfairly, as second only to the bankers.

The options boil down either to introducing a surtax or levy on bankers and other pensions above a certain figure, or holding a referendum to amend the constitution. The argument against introducing a surtax is that , if it were not to be deemed discriminatory, it would have to apply to all pensions above a certain figure, with all that that would imply. However, the Irish income tax code is a comprehensive one, replete with exemptions and exceptions and it should surely be possible to draft legislation in such a way that the practical application would be to reach those for whom it was intended.

The precedent for holding a referendum is the one held last year to permit reductions in judges’ pay (constitutionally protected) following the refusal of a minority of the judiciary to agree to a voluntary pay cut. Not surprisingly the referendum was carried four to one. There is little doubt that one on bankers’ pensions – maybe even their pay – would be carried similarly, the trick being to find the appropriate wording; and there’s the rub.

The budget speech will be interesting.

“FOUR LEGS GOOD, TWO LEGS BETTER”

The last few weeks could turn out to be the watershed for this government. Some events or trends have happened or crystallised lately that taken together have changed the way the public perceives the government. Increasingly the question being asked is how it differs from its predecessor. The words of Sean Lemass, asked to define the difference between Fianna Fail and Fine Gael, are being recalled: “We’re in and they’re out!”

The government has now been in office for over eighteen months, roughly one third of its allotted span, its goodwill has been exhausted and it is being judged on its performance record above and beyond the mess it inherited.

On several issues that performance has been found wanting, most recently over allowances paid in the public sector. These (over 1000) cost almost $2 billion annually, and with considerable fanfare the government had undertaken to trim them after review by roughly $100 million (5%). The counter -argument has been that many of these allowances had been introduced over time for very good reasons in lieu of core pay and had morphed, over time, into part of core pay.

Few could have foreseen that the outcome of the review would be to cut immediately just one (!) allowance, to yield annual savings of $5 million. Some others are to be negotiated. The official line, that the government had decided to bite the bullet rather than risk industrial unrest in the public sector over a mere $100 million has been greeted with public derision. Moreover the issue is widely seen in the context of the continued generous allowances paid to politicians of every hue.

This has been compounded by the media revelation that politicians of all parties continue to employ family members as special assistants of one form or another, some at salaries up to $ 50,000, with at least 15 employed by government TDs and senators. One government politician, who employs his wife, argued that he regarded her as his closest political confidante. And there lies the rub. Why should a politician not employ the person he/she most trusts as his assistant? As a left wing independent, employing her partner, asked should a political novice, or opponent, be favoured over a like-minded confidant? While there is evident public dissatisfaction at this state of affairs, the current crop of politicians seem loath to change matters.

Throw in the feeble handling of the Household Charge and septic tank issues, Ministerial hand wringing over recent increases in energy, utility and mortgage costs, the slow rate of closure of superfluous quangos and the homage accorded to the Croke Park Agreement (negotiated by the last lot and regarded as akin to holy writ) and the impression emerging is that there has been no “new politics” and the only evident change the faces of those at the top.

A recent very public spat between Health Ministers has not helped. Roisin Shorthall, the combative (Labour) junior Minister, resigned office and the party whip after her boss, Minister James Reilly, added no less than 15 extra candidate sites for primary health care centres to the original list of 20 drawn up by Shorthall on the basis of a deprivation index. Two of the extra 15 were located in the Minister’s constituency; others were well down the index. Reilly rejected charges of “stroke politics” and pointed out inter alia that, as Minister, he took the final decision. Shorthall received no support from Labour cabinet ministers. She may well have been on thin ice in any event for her gung ho stance on increasing prices for cigarettes and alcohol on health grounds. She now has the luxury of being able to vote against unpopular measures in the forthcoming Budget.

The reality, of course, is that the perilous state of the economy has virtually eliminated the government’s freedom of movement, and that will remain the position until the annual books are balanced and we live within our means. All election promises are on hold. Any measure of relief from Europe on bank debt will not affect this. Indeed the anxious Irish eyes are now focussing on the worrying forecasts for future international economic growth. The rescue plan of 2010 was predicated on growth figures that now appear unattainable, with every prospect that the fiscal adjustment will have to be larger and last longer than was forecast.

This is simply not the time to dredge up and take a stand on ideological principles. The government is determined to soldier on, hence the jettisoning of Shorthall by her party colleagues. There are likely to be further defections from Labour at least, come December, and probably from Fine Gael on some local, rural issues. Labour cannot afford to jump ship; it has slipped markedly in the polls, with Sinn Fein in particular biting at its heels.

Support for Fine Gael has remained fairly steady, indicating that the middle class support which had stuck with Fianna Fail through every scandal until 2011 remains faithful to its new favourite. This is hardly surprising; after all, currently it has nowhere else to go. Certainly not to the left, which shouts for a raft of extra taxes “on the rich”, uneasily undefined, above and beyond even what is coming. Certainly not back to Fianna Fail, which remains on life support, unable to shake the monkey of decades of scandal, cronyism and economic mismanagement. Some commentators across the political spectrum are already suggesting that, provided not too many noses are put out of joint, Fine Gael could remain the largest party for a long time.

This assessment may prove premature. However stoical the middle class, the immensity of shaping December’s budget is also penetrating. The required economies of around $4.5 billion – to be achieved in a 2:1 ratio of spending cuts and increased taxes – are daunting. Can spending be cut by $3 billion while leaving social welfare payments and public sector pay and pensions unaltered? And even if there are cuts of $6.50 per week in unemployment benefit, child benefit and the old age pension, the combined savings would amount to less than $300 million. Bullying civil servants into a 10% cut in salaries and pensions (the wider public service, police, nurses, teachers, looks too tough a nut to crack this year) would yield a further $200 million. Freezing increments maybe $ 300 million. Still over $2 billion short.

New taxes are promised. A property tax from July next. Could the middle classes, and specifically the urban ones, sustain any more than a levy to yield $400 million given that, in the Irish way, there will be categories exempted? Or income tax hikes to yield $250 million? Cigarettes? Already the highest taxed in Europe, with 90 million smuggled cigarettes seized to date in 2012. Alcohol? Already highly taxed, and with an open border to Northern Ireland. Medical charges? For those who pay, in a country where medical cards (akin to gold dust) are distributed unevenly across the country. A VAT hike? More levies?

The gap remaining is huge. Who’d be a Finance Minister, framing the budget? Who’d be a middle class urban dweller, paying for it? Noses out of joint?”

“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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