FERGUS FINLAY: The real outrage is still to come as deeper budget cuts start to bleed

I’m not advocating that we should abandon the pension reserve fund to pay for day-to-day expenditure.

But the idea that we’re keeping more than €1bn to one side to pay for the future, and to invest in wildly uncertain markets at a time when our school system, for example, is under extreme pressure, is madness in my view

LEADERSHIP? You’d have to wonder, wouldn’t you. The essence of leadership is communication — especially the ability to communicate a coherent and long-term vision. But the only thing the Government managed to communicate, in the aftermath of last week’s budget, was that elderly people, and especially vulnerable elderly people, would be expected to carry the burden of adjustment in our public finances. People who had given a lifetime of service were called on to show their patriotism by living in fear.

At least, that’s what it seemed like. Ever since then, the Government has been scrambling to try to correct the impression they have created through their own mismanagement of their message. In the process, they have already lost a backbencher and allowed themselves to be completely destabilised.

The Taoiseach and his ministers may recover their authority, but it will take a huge amount of work. And if they recover authority internally by backing down on the core decision, they will lose external authority forever. As an exercise in the firm leadership we needed — and that the country was ready for — the whole thing left a lot to be desired.

But the irony is that the controversy about the over-70s’ medical card has actually masked a series of decisions that could well have bigger and more serious effects in the longer term.

The income levy, for example, is a fundamentally unfair and crude decision. The idea that people earning the minimum wage should be expected to make the same contribution from their meagre earnings as people earning €90,000 a year is actually quite shocking.

It would have been fairer, and just as understandable, for the Government to decide that in our particular circumstances, the standard rate of tax should be increased by 1% and the top rate by 2% or 3%. But that would have been seen as a tax increase, and this Government will not allow itself to be seen to be increasing taxes.

The income levy is a tax increase, of course, but nowhere in Finance Minister Brian Lenihan’s speech will you find it described as such.

And no minister or Government spokesperson will be allowed ever to refer to the levy as a tax increase. Cosmetics are more important than fairness.

Perhaps in some ways though the most extraordinary decision the Government made last week was not to make a decision at all in respect of one very vital area.

Mr Lenihan referred to the income levy fairly early on in his speech and in the very next paragraph, he said: “I am conducting a review of the National Pension Reserve Fund in the context of recent economic and fiscal developments. It is my intention to complete this review before the end of the year. Any changes requiring legislation will be brought forward in due course.”

What does that mean? It means that as things stand, and unless they bring in a change in legislation, the Government remains committed to investing 1% of GNP in the pension reserve fund next year. That will mean in excess of €1.5 billion.

Imagine, when we can’t even afford the basics, when we are imposing a levy to raise nearly €2bn, we still can’t make a decision about an investment of that size.

Now don’t get me wrong.

The idea behind the pension reserve fund is basically sound. It enables us as a country to provide for a future when there will be fewer taxpayers and more pensioners.

As our population ages, it is incumbent on us to put aside as much as we can reasonably afford each year to ensure we always have the resources available to treat people decently and with the dignity they deserve.

Throughout the good years of the Celtic tiger, we put aside billions. By the end of 2007 there was more than €21bn in the fund, and its investment value had grown a bit during that year.

But then the subprime crisis hit. Even those of us who are complete laymen in this area know the stock exchanges of the world have been all over the place, and that there is no safe area to invest money in.

The most recent report of the fund’s performance demonstrates this all too clearly.

The fund’s value at the end of 2007, to be exact, was €21.153bn. By the end of September 2008, the fund’s value was €18.7bn. That’s a drop of 12%.

In fact, according to the fund’s own website, the drop in value in just three months from July to September last year was 6%.

There is no sign right now, or in the immediate future, that the fund can look forward to steady growth, even modest growth. So why in the name of God have we not made a firm decision to suspend investment, or even to reduce it?

I’m not advocating that we should abandon the fund in order to pay for day-to-day expenditure.

But the idea that we’re keeping more than €1bn to one side to pay for the future, and to invest in wildly uncertain markets at a time when our school system, for example, is under extreme pressure, is madness in my view. We should be using that money to build and modernise schools — and to keep people in work, incidentally. We should be pumping it into ways of equipping today’s young people to become the taxpayers we need in the future. Instead of doing that, we are making miserly cuts in all sorts of places.

I predict that when the impact of those cuts begins to be revealed, the reaction to them will put the present controversy in the shade.

The devil, in most of these areas, is in the detail — and some of the detail, as it unfolds, will reveal a deep level of unfairness to people and groups that are already deeply marginalised.

AND that unfairness will be compounded by the wrongheadedness of a failure to provide for the future. Rich countries — and we are still one of the richest countries in the world — must educate their children to the highest possible standard. They must be willing to organise childcare on a basis that pays real dividends in terms of growth and development. But instead, if you look at the list of agencies that are to be “merged” or “amalgamated” or “integrated”, the only one that is to be closed is the Centre for Early Childhood Development and Education — a tiny but effective body that was key to improving standards in childcare.

And civilised, rich countries must really protect people who are vulnerable — and not just pay lip service to it. None of that ought to be, or needs to be, a pious aspiration even when times get tougher.

But — and I’m sorry if this sounds like a broken record — it does require leadership. This frequently requires short-term decisions but always underpinned by a sense of vision about the longer-term future.

Last week’s budget had too much of a sense of panic about it, and not nearly enough vision for a brighter, fairer future. It was that, more than anything else, that has caused the Government’s continuing difficulties.


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