WITH the country bracing itself for the harshest hair-shirt budget in the history of the state tomorrow, it behoves Finance Minister Brian Lenihan to remember that if his second budget in five months fails to be both credible and effective, Ireland will be in jeopardy.
As the country lurches from financial crisis to crisis, the immediate challenge facing the minister is to get his hands on money through a package of taxes, income levies and savings measures in order to plug the black hole in the economy caused by the frightening fall in the country’s national income.
The dilemma facing Mr Lenihan is to strike a reasonable balance between cutting public expenditure and raising taxes. After years of economic mismanagement by successive Fianna Fáil-led governments, he must guard against taxing his way out of this crisis through what Fine Gael leader Enda Kenny called “slash-and-burn policies” at the party’s weekend Ard Fheis. Clearly, the old reliables — alcohol, tobacco and petrol — are in line for swingeing increases. And with income levies set to double, middle and higher earners can expect to don the hair shirt.
Given the rapid deterioration in public finances, Taoiseach Brian Cowen has signalled strong action needs to be taken and that, with tax revenue down by 33%, the system must be redesigned.
But as far as tomorrow goes, it is crucial to avoid penalising those who rely on social welfare, the most vulnerable in Irish society. Cutting the minimum wage and slashing social welfare payments will not solve the country’s problems. Plainly, the Government’s problems go deeper than the immediate need to raise money. Any plan for economic recovery will be doomed unless the Government is prepared to address once and for all the thorny issue of employment in the public service.
For years this problem has been crying out for radical reform. Nowhere is the need for surgery more evident than in the HSE where long-suffering patients have to endure interminable hospital queues, while we have the ludicrous scenario of 49,000 administrators managing 62,000 front-line staff. That’s indefensible.
If, as expected, the minister unveils plans to reform the banking sector and address the issue of bad property loans, he must be prepared to remove those responsible for this debacle which is costing taxpayers billions.
Tackling the jobs crisis goes to the heart of tomorrow’s budget. According to Department of Finance estimates, every 1,000 people unemployed will cost the Government €21 million annually in terms of lost revenue and increased social welfare payments.
With unemployment climbing at an alarming rate, the fear is that jobless figures could reach the 500,000 mark by the end of this year. If that were to happen, the extra cost of job losses to the state would be a whopping €10.5bn. With living standards falling sharply and Ireland’s international credit rating much reduced, it is vital to stabilise the public finances through credible and realistic measures. Above all, Mr Lenihan must send out a strong message to convince a worried public at home, as well as the EU and other international institutions, that the Government is capable of getting Ireland out of a hole that’s getting deeper by the day.
© Irish Examiner Ltd. All rights reserved