It will be years until we know if it was the right call to have sold our 25% stake in the State airline. In the meantime, the Government has a one-year horizon. Everything is being timed towards then.
Not everyone will be happy if Aer Lingus is sold and they may be right, but the trade unions are over a barrel. They have some concessions and assurances and the barrel is not Aer Lingus, it is the new version of social partnership (renamed as ‘social dialogue’), which has just commenced. For them, that is the real game. It is for us, too, because they are playing with our money.
I don’t know if you were watching Claire Byrne Live, on RTÉ, on Monday night. There was a discussion about services for the most vulnerable. Typically, there was talk that the Government should give more money to organisations that deliver those services.
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Labour Minister for State (New Communities, Culture and Equality), Aodhán Ó Riordáin, said that in the past, we, the electorate, had made political choices that prioritised tax cuts over spending. That’s a fair analysis.
A former senior colleague of mine — a man I admire — Dr Martin Mansergh, is returning to the political fray and putting his name before the Fianna Fáil selection convention in Tipperary. Mansergh was quoted as saying he favoured “Micheál Martin’s slightly left-of-centre positioning of the party, rather than the PD-orientation of the past”. So, there you are; a social democratic consensus.
It doesn’t answer the question of how we can sustainably create wealth. Before we spend it on anything, we have to make it. In 2015, this economy is spending about €1,000 for everyone in it, in borrowed money, on services we can’t afford.
That didn’t get a mention on Monday night. The engine of this economy is highly-mobile foreign direct investment. As everything else plummeted south in the crash, that was the one sector that held up. Without it, Ireland would be Greece, and the scale of spending and service cuts would be savagely worse.
Aer Lingus, and how we pitch our tax rates, and how, within our tax rates, we strike a balance between income tax and other measures, are all pieces in the same jigsaw. If we diminish connectivity, or competitiveness on key air routes onto the island, our strategic advantage, as an economy, will be damaged. One of the most corrosive parts of the damage to the Irish economy during the noughties was the loss of economic competitiveness.
In 2007, Irish wages peaked at 114% of the EU average. We had awarded ourselves higher wages that we hadn’t earned. These were just enough to repay a mortgage for a house whose price had exploded firstly because of those higher wages, and secondly because a wall of cheap money had fallen unregulated onto the Irish property market. That was a toxic combination.
In parallel, public spending rose. From 1998 to 2008, public spending grew by an average of 11.5% a year. Restoration of lost wages, for which there is a clamour within the public sector, is not only unfeasible, it is insane and unfair.
Paradoxically, it is those of a social-democrat stamp who are leading the pace on public sector wage restoration, chiefly Labour in government now. The game afoot is that after the Government’s spring statement there will be between €1.2 and €1.5bn extra to budget with in 2016.
Never mind that this will have to be borrowed. It is the Government’s intention to split the largesse between tax cuts and additional spending. In other words, at most there is an additional €750m in tax cuts and spending increases, respectively. Just because it’s modest, does not, however, mean it is either affordable or sustainable.
Yesterday, in Leinster House, in between the hullabaloo about Averil Power’s departure and Bobby Aylward’s arrival, the Oireachtas Finance Committee met with Pierre Moscovici, the EU commissioner for Economic and Financial Affairs, Taxation and Customs. A former French finance minister, he is a big hitter in Brussels. Among the recommendations he has made is that Ireland “use windfall gains from better-than-expected economic and financial conditions to accelerate the deficit- and debt-reduction”.
In other words, don’t pay for tax cuts or spending increases on the HP. You see now, how, in myriad ways, this all returns to topics as diverse as selling our remaining share in Aer Lingus and letting go the leash on public service pay. And lest the point be lost, last week, as we were in the throes of the referendum, the EU Commission vice president and former prime minister of Finland, Jyrki Katainen, made essentially the same point, when he was here. The fact is we still have the fourth-highest debt to GDP ratio in the EU, and if even a strong breeze, let alone a real storm, came along, we would be blown over again.
For people participating on Claire Byrne’s show on Monday, talking about the particular underfunded service on which they depended, it may have seemed a straight swap between less tax cutting and more spending on vital services. A social democrat versus PD analogy.
But, over time, the real foundational tension for political leadership and economic sustainability is between spending on public service pay, and providing for additional public services. Increased public service pay translates into less money for new hires into fewer jobs, and less availability of services.
In the past, what investing in public services has meant is that most new money that went into public services went into increased pay and pensions. This isn’t equality; it’s outrageous.
Even if you assume that spending an additional €750m next year is prudent — and the EU Commission doesn’t — then how do you really feel about half of that being swallowed in public sector pay increases?
You may have noticed that nobody was ever made involuntarily redundant from the public service. It is hardly a surprise that nobody is leaving voluntarily, either, except on a pension or a good package. In any other job, if you get a better offer, you leave. If you have nothing better to go to, you stay put.
The market force underpinning public sector pay is no less real because it is entirely political. But market forces are out of fashion for now.