Leading economist urges public sector cost-cutting

A leading Irish economist has said that the Government has no option but to implement systematic cost-cutting in the public service in next week’s budget, stating that “in the current circumstances we have no option but to cut our cloth to match our means”.

Addressing the Institute of Certified Public Accountants’ Member in Industry conference, Charles Larkin of Trinity College Dublin’s Department of Economics said that one specific area that must be addressed by the Minister for Finance is civil and public sector pensions.

“The cost of public service pensions comes straight out of current expenditure and has to be reduced,” he stated.

Dr Larkin also warned, however, about a return to excessive borrowings, stating: “Ireland should not repeat the mistakes of 1979 when Martin O’Donoghue and the Government brought in a policy of borrowing our way back to wealth.

"Those policies failed in the past and we should not contemplate returning to policies that failed 30 years ago and have no better chance of working now."

On the current banking crisis, Dr Larkin said: “The only way the credit crunch will be fixed is to continue with the existing ‘band-aid’ measures but also bring in a system of international regulation.

"We need a Basel III Accord and there is also a role for organisations such as the International Monetary Fund and the Bank for International Settlements to try and design a new global regulatory policy.

"It’s clear from what has happened in recent weeks that banking does not stop at national borders, it’s a global issue which needs global solutions."