Instead of change we can believe in, we’re getting the same old song

Thursday, November 10, 2011

NO matter how many ways that you try to adapt candlelight it can’t be made into a light bulb.

A completely different approach was required to confront the problem of darkness. Ireland’s budgetary crisis, with fiscal deficit of €20 billion, is being approached by the same incremental policies, irrespective of a change of government. People voted for change through Kenny and Gilmore, yet ended up with Merkel/Sarkozy rule and the same outdated fiscal rectitude. This administration’s medium-term four-year budget plans represent the same old recipe of stealth taxes, rather than radically downsizing government.

An overall adjustment of €12.4bn is required over the coming years to fix the public finances. The key political challenge is the balance between spending cuts and revenue raising measures. The general election determined the numerical muscle between Fine Gael and Labour. FG wanted a ratio of 72%: 28% versus Labour’s 50%: 50% between less expenditure and more taxes. The agreed prescription of 62%: 38% masks reality for many families. In many cases, cuts mean extra new charges. Reducing the school transport budget involves raising costs per child from €50 to €100 or a family ticket from €110 to €220. In accounting terms, it’s deemed "savings". The soft option of raising revenue is ubiquitous in every department.

For 2012, €3.8bn of medicine needs to be swallowed. No government has ever had such a unique opportunity to transform delivery of public administration. They are at the start of a five-year term of office (no election in sight). They have an unprecedented Dáil majority of 60 seats (not beholden to anyone). Voters are conditioned to expect and accept austerity. Innovation in establishing a new department of public expenditure and public service reform could have revitalised ritual trench warfare that previously existed between the Department of Finance and line departments. A new beginning was possible in the culture of "this is the way we do things around here". There is little evidence of any departure within the establishment culture.

Early indications signal a tepid approach. We are set to close three embassies in the Vatican, East Timor and Iran. A more ambitious programme of downsizing 23 expensive diplomatic outposts could be more appropriate — 75 embassies for a country of our size are too many. We could merge and consolidate them on a regional basis, incurring savings of €15m. Instead of a radical reappraisal of the future role of the defence forces, reducing foreign UN commitments, we are set to maintain 9,500 unaffordable troops for a neutral state.

The Department of Social Protection is the biggest spender, with €20.6bn this year. This is partly funded by the Social Insurance Fund. There is a deficit of €1.9bn between categories of benefits and contributions. Our package of welfare benefits exceeds that which exists in virtually every other eurozone states. The EU/IMF troika have included in our bailout memorandum, a provision to reduce this expenditure by €2bn. Irrespective of cutting payment rates, there are opportunities for welfare reform. The bureaucratic challenge is to focus scarce resources to greatest need.

These include means testing costly child benefit (€2.2bn) to target entitlement and restrict eligibility to children who are resident in the state. We could cease paying the €516 household package of free gas/electricity, TV licence & and telephone allowance to all pensioners, regardless of income. The cost of the Rent Supplement Scheme amounts to over €500m. This still seems to be administered without requirements for landlords to be registered with the PRTB or tax compliant. There is no benchmarking to ensure reductions to lower market rents. The CAG has continually highlighted tens of thousands of cases of benefits being paid to dead recipients. No foolproof backstop links death certificates to departmental files.

Successive governments have funked reform. The FF/Green Cabinet introduced the Universal Social Charge as a new layer of revenue on pay packets. This crowd, having already hit pension assets, are set to pursue the bright idea of widening the PRSI net. Unearned income is now in their sights. The USC is probably going to be levied on sources of income that were previously exempt. These could include revenue from property rents and investment returns, such as dividends or proceeds from share options. Applying 5.4% deductions to all income, earned and unearned, will deliver flat rate finance, irrespective of individual circumstances.

During the election campaign, there was a lot of rhetoric about abolishing quangos. FG initially promised rationalisation of hundreds, but eventually reduced this to a definite list of 145 bodies for the chop. Precious little is now mentioned. Focus of the Croke Park agreement is on standardising annual leave and working week, reducing absenteeism, axing privilege days and longer opening hours. Notwithstanding establishment of Employment Control Frameworks (ECF) within state organisations, more fundamental reappraisal of their very existence and duplication isn’t evident. It’s amazing, within these ECF quotas for individual departments, how they match the existing complement of 17,700 civil service numbers. The axe isn’t falling inside the tent. Capital expenditure is to be shaved by €750m from €4.7bn spent this year.

Due to the recession, travel movements are reduced by one-third from the Celtic Tiger peak. We have developed superb infrastructure of national road networks. This infrastructure doesn’t need to be replicated. Savings of €1.5bn are possible in the PCP. Metro West & North, Dart & Luas interconnector projects are no longer affordable and should be shelved. National Children’s Hospital can be deferred. Special-interest pleading by the construction industry was a significant cause of our downfall. Job creation, via the PCP, is unsustainable if financed through higher tax rates.

The last three years have been about reduced living standards and belt tightening. Now it’s gone beyond that realm to anxiety of survival. Unpaid utility bills from energy price hikes and mortgage pain abounds. The ever-increasing cost of child rearing is making life unbearable. Coping classes comprise 1.8m people in employment. Travel to work and home heating costs have increased through the new carbon tax of €15 per tonne. This is set to double. With 1.6m householders liable for the new €100 charge, expect an entirety of €1,547 yearly additional costs.

The December 6 budget seems to be the same old choices: VAT to be raised to 23%; abolition of income tax reliefs and allowances; widening the tax base — novel approaches to the same failed formula of refusing to upset hidden vested interests within the corridors of power. Conflict of interest between the permanent government retaining the superstructure of fiefdoms has never been assaulted by politicos because they are wholly dependent on them. The wish list of policy options precludes cannibalisation. Public services and subsidies that trickle over the counter of public administration are served up for savings. Grasping once in a generation opportunity for zero budgeting? No minister. Plus ca change…

This appeared in the printed version of the Irish Examiner Thursday, November 10, 2011