Thursday, April 14, 2011
NOW that ministers are sitting comfortably in their new offices, with advisors appointed, time to press ahead with the 100-day programme.
Pre-election promises to hit the ground running included a jobs mini-budget. This timetable provides for a Dáil pronouncement on Wednesday, June 8.
Instead of token measures of employers PRSI and start your own business initiatives, why not restore employer and business confidence with a maxi budget to fast forward on fixing the €9bn deficit?
Political arguments in favour of tackling overspending now are self evident. The old adage "eaten bread is soon forgotten" applies equally to both good and bad news. If FG and Labour are aiming for a general election in spring of 2016, the sooner unpalatable medicine is administered, faster it will be forgotten. Delaying decisions until 2012 will only prolong pain.
The Comprehensive Spending Review initiated by cabinet this week can be fast tracked and presented with a ribbon on it in standard budget format. This will give centralised cohesion, authority and leadership. The lesson of the Bord Snip report implementation, launched in July, allowed internal objectors to thwart rationalisation intentions. The biggest political timebomb for the government is potential backbench revolt. The glow of inner warmth from being elected or re-elected a TD will wear off within a year. While they are disorganised and content, it is time to strike against vested interests who will oppose spending reforms. Lobby groups will have less time to organise even bigger campaigns of resistance if government acts with alacrity. Our overlords and ultimate economic suitors — the financial markets — will be pleasantly surprised by clear cut fiscal rectitude prior to the summer break. For once, we can create positive headlines in Europe.
The target should be a €5bn adjustment, big ticket items can include:
* Social welfare represents the largest single expenditure component at €20.9bn. The previous Government promised in the EU/IMF memorandum to reduce this by €2.1bn or 10%. Action programmes on welfare fraud may yield savings with a ceiling of €300ml. Key policy directive must be to focus resources to greatest need. The Programme for Government provides for a singular comprehensive means test in one unified state office, replacing the current myriad of personnel and procedures. Therefore, we can establish those families whose income exceeds €60,000 per annum. They would cease to obtain child benefit, saving €500m. All Free Schemes (eg fuel, electricity, telephone, travel, TV licence, etc) can be means tested and payable to those whose income is below this threshold.
* The HSE budget is €14bn, principal feature of which is human resource payroll. 8,000 personnel have to be induced into voluntary redundancy or early retirement (VER). Mary Harney only achieved 2,006 from a target of 5,000. Outsourcing is an essential ingredient. The National Children’s Hospital (provisionally costing of €600m) and other capital projects will have to be put on ice for three years.
* Public sector pay accounts for €15bn. The Croke Park Agreement has become a slow bicycle race, with in-built mechanisms to preserve the status quo. As an interim immediate step €250m can be saved through the suspension of all increments. This anomaly allows for stealth pay rises that are not based on promotion, only years served. They have no productivity element and can no longer be afforded. The decentralisation programme must be aborted, with no further ouylays.
* Quangos. Brian Lenihan announced in the Dáil major rationalisation of state agencies on the October 14, 2008. Thirty proposals promised to reduce the number of bodies by 41, with a list in each department. This was preceded by the OECD review of the Irish Public Service and followed by the Bord Snip Nua report. Progress has been lamentable due to a central guiding principle, "the interests of those people employed in the various agencies should be taken into account in considering and implementing specific rationalisation proposals". This has proven to be a recipe for paralysis.
Much promised, little done. Mainline departments should take back policy formulation and advisory roles that are currently devolved. Amalgamation of bodies should be compulsory with the benefit of sharing back office services. Original specific establishment goals have either been achieved or are unachievable. FG promised 145 would be axed. Get on with it. Offices of Ombudsmen, Regulators and transport accident investigation units can be amalgamated. A VER programme within state agencies of 5,000 is a prerequisite.
* Education, with an annual budget of €8bn, cannot escape. Teaching outcomes in relation to literacy and numeracy have not improved despite reductions in pupil teacher ratios. An increase of one at primary and secondary levels from the current ratio of 24:1 should be considered for a finite period. Given that the total pupil numbers will increase by 20% over the next decade, this may be necessary to prevent escalating costs.
* The Overseas Development Aid budget and UN international commitments are no longer affordable. Unfortunately they need to be repudiated. Current annual expenditure of €670m cannot be sustained and should be halved with savings of €335m.
Transport 21 commitments have to be radically revised. No new contracts should be entered into. Metro North, DART underground and the Luas interconnector all have to be stalled for the foreseeable future. This will save more than €3bn over the next five years. This can be justified on the basis of a significant decline in traffic movement demand over the past three years.
* Bord Gais Éireann is completely commercial and should be sold by either an IPO or strategic share placement. They are currently burdened by having to pay sovereign bond rates for their capital requirements. It would probably yield €3bn to €4bn on a staggered basis. Out of state hands, it will provide keen competition in the utility energy sector to the benefit of consumers.
All of the above are urgent and overdue because of the revised downward growth forecasts for the Irish economy. The outturn for 2010 and prospects for 2011 could be reduced by up to 3%. This means tax revenue will remain sluggish. Last week’s exchequer returns indicate VAT and employment taxes are behind December budget targets. Buoyancy in corporation tax masks a duller outlook. Any budget has to have balance. An additional household revenue base is inescapable. Local government has a fiscal black hole of €4bn.
The suggested delay for three years in the introduction of water rates is a political error as 2014 is local election year. Pending water meters and in lieu of a residential property tax, a flat €250 universal local services charge per household has to be enacted. At €5 per week, it’s equivalent to one drink in the pub. Any thoughts that this is an optional extra overlook the fact that the bailout deal promised both a water and property tax by October of this year. The troika team will remind government of its terms and conditions. Kenny and Gilmore have a golden opportunity to get on the front foot. Bring on budget day before the inertia paralyses our politicos.
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