Economic crisis - A flicker of light at end of tunnel?

THE endorsement by the International Monetary Fund (IMF) of government policies designed to confront our economic crisis should be a cause for some optimism but as its publication coincided with dismal predictions relating specifically to Ireland from the Organisation for Economic Co-operation and Development (OECD) it may be premature to rest on our oars.

The OECD predicts that our economy will shrink by almost 10% this year, one of the most pessimistic predictions issued during this crisis. The Paris-based agency expects an additional fall of 1.5% next year.

The OECD confirms what we already know and says that “substantial” spending cuts and increases in tax will be needed because of pressure on the public finances.

Though our situation remains grim we can take some comfort in the fact that, for the first time in two years, the OECD has revised its World Economic Outlook upwards. The organisation has concluded that the global economic slide is nearing a bottom. This must give us all cause for a degree of optimism.

If all of these predictions are realised, we are in for a grim time nevertheless, but if recovery begins elsewhere we can hope, eventually, to be part of that rejuvenation. We cannot, however, as the IMF warned, expect to return to the Celtic Tiger extravagance of recent history.

Adding the festival atmosphere over recent days Taoiseach Brian Cowen reiterated that €4bn in spending cuts would have to be delivered in December. He also reminded us that social welfare spending and public sector pay accounted for two-thirds of government spending. It would not take the perception of a bloated goldfish to realise that these areas will come under intense scrutiny before Christmas, just over six months away. This is the battleground where this country’s future will be decided. The IMF doesn’t put a tooth in it when it refers to our public finances. It says the Government is making the right choices but more will have to be done — a reference to social welfare.

One of the issues coming ever more to the fore is the impact this crisis has had on pension funds. Irish retirement funds collapsed because they are overexposed to shares and property. The OECD warns that those nearing retirement may have to radically scale back income expectations. Nearly a million Irish workers are between the ages of 44 and 64 and this represents a pension timebomb. Already the Government moved to bail out public sector pension funds by transferring them into the National Pensions Reserve Fund. Fourteen state and university pension schemes are involved. The schemes have assets of €1.75bn, but liabilities of nearly double that, at €3bn. However, the Government cannot afford to take over or guarantee private funds.

In a society where, almost on a daily basis, every club or community hears of a public or civil servant retiring in their mid-50s with a tax-free lump sum unimaginable for a private sector worker — and a bullet-proof pension to follow — this situation is socially unsustainable. Though Mr Cowen has more problems than anyone would wish, this issue will have to be confronted. It is so terribly inequitable as to demand attention.

Though the OECD predictions are grim, we can take a smidgen of comfort from the IMF assessment: things are rotten but there may be an end in sight. The solution is in our own hands and we must have the courage to implement it.