Budget 2014 - It’s too early to take the soft options

Though the details of Budget 2014 will not be announced until October battle lines are already well drawn and entirely predictable.

Economic and political, not to mention social and moral, imperatives vie for attention. Pro-stimulus lobbies are at loggerheads with those who believe that this year’s budget deficit — forecast to hit €9.6bn, €6,000 for everyone in full-time employment in the country — is not sustainable on a long-term basis.

The Government hopes to be in a position to introduce a less draconian package than those of recent years, but even at this remove the troika has poured cold water on the prospect of a voter-appeasing package of reduced cuts and/or a veto on tax hikes.

Discussions with the IMF, the EU Commission, and the ECB continued over the weekend, but it would be foolish to expect a troika concession on core values to give politicians enough wriggle room to at least ease the impact of another round of austerity.

That all of this will play out against a background of domestic and international uncertainty just adds another layer of complexity to the process. That one response — austerity — might serve fiscal consolidation while at the same time deepening social dissatisfaction with politics and politicians has been the bugbear of “demand democracy” politicians since the end of the Second World War.

Last week the Economic and Social Research Institute published its medium-term review and one of its proposals was that the Government should introduce a steady-as-she-goes budget and have the courage to persist with the plan to cut €3.1bn from public spending. This proposal was made in the full knowledge of the opportunity presented by the replacement of the former Anglo Irish Bank promissory notes with long-term government bonds. Though this seems a tempting proposition it smacks of the short-term opportunism that did so much to destroy our economy.

This has not prevented Finance Minister Michael Noonan trying, as he must politically at least, to run with the hare and hunt with the hounds by offering the prospect of a politically and socially more palatable package. However desirable that prospect might seem it may be at the very least premature. Under the terms of the stability and growth pact Ireland is expected to “achieve a budgetary position of close to balance or in surplus over a complete business cycle.” Mr Noonan has suggested that achieving the 3% deficit target will allow him be less demanding, though the troika sees the 3% figure as the upper limit, not the ideal figure.

Mr Noonan is also faced with the challenge of cutting our national debt to something around 60% of GDP from its current level of almost twice that.

Another difficult budget would be music to the ears of a resurgent — incredibly — Fianna Fáil and would add to the anti-Government momentum generated by last week’s unavoidable but deeply divisive events.

The long-held fear that the enthusiasm for public sector reform would wilt once the troika’s hands-on role ends exacerbates concerns that we might, once again, make the easier but wrong choices.

Surely the grimness, the dispiriting, the relentless misery of the last five years has been enough to bring an end to wishful thinking politics and wishful thinking on the part of the electorate?