The emergency budget - The hardest decisions were dodged

THOUGH the income levies are to be doubled and imposed at lower salary levels, mortgage interest relief is to be scaled back, the Christmas welfare bonus axed and plans for means testing of child benefit are afoot it is very difficult not to think that the insatiable monster in the corner has not been confronted.

That it has not even had its chin tickled.

Finance Minister Brian Lenihan had the onerous task yesterday of introducing the toughest budget in the history of this young and weakened Republic.

He had promised nothing less and we expected nothing less. As it turned out the Government conceded that economic activity will fall by about 1% on foot of yesterday’s package. Hopefully this will not have too negative an impact on already struggling businesses.

With so very much at stake the Minister needed cash flow and he will get it from May 1 — just three weeks away — through the increased income levies.

The levy changes are particularly significant as the levy applies before any deduction for capital allowances or pension contributions.

The huge number of private sector workers and the tens of thousands who have lost their jobs — unemployment has doubled in the last 12 months — will be angry and envious that there was no mention of a universal review of public sector pay.

Mr Lenihan has, however, asked the Review Body on Higher Remuneration in the Public Sector to “undertake a fresh review of top level pay rates to ... to benchmark rates against those of other EU countries of comparable scale”.

He has asked that this process be completed by July and said that he believes that pay “at leadership levels in the public sector should be more in line with pay in other countries rather than with top level private sector pay in this country which had become over-inflated in recent years and is now falling”.

Our economy is in free fall, our economic independence is not assured yet two of the great destabilisers — benchmarking and its unsustainable legacy — are not even up for review.

It may be clutching at straws but even at this late stage is it too much to hope that the high-level review is a precursor to a similar and vital review of all public pay scales?

This is a deeply divisive but corrosive issue that just won’t go away. The numbers just don’t add up and this issue must be confronted sooner or later. It is difficult to understand why it did not happen yesterday because in at least two instances initiatives were introduced to serve the principle of equity.

One was to benchmark politicians’ wages with those of politicians in countries of a similar size rather than private sector executive salaries. The other ended the anomaly of sitting deputies enjoying ministerial pensions. Both are commendable and progressive.

They put flesh on Mr Lenihan’s closing remarks calling on opposition parties, unions and all other interest groups to realise that these are very different times and a unity of purpose must be the primary objective.

Sectional interests — even Fine Gael’s and Labour’s — must be put aside for the common good for the moment at least yet the great, overpriced monolith remains untouched.

Rather than encourage the required sense of unity the continuing denial about what it costs to run this small country is a boil that is not yet lanced. How did 20% of our workforce become so very untouchable?

If this issue was left aside for another day then confronting the banking crisis could not be deferred.

Mr Lenihan announced that property loans, approaching €90 billion — about half Ireland’s economic output — will be transferred to a new National Asset Management Agency in exchange for government bonds in an effort to reinvigorate banking and restore confidence at home and abroad.

The Minister told us that these assets pose the main systemic risk to the banking sector and with a reassuring directness he insisted that “if the agency were to fall short of recouping all of the costs, the government intends that a levy should be applied to recoup any shortfall” from the banks.

It is not difficult to be angry about this get-out-of-jail card underwritten by the exchequer and it must be hoped that in the fullness of time the anticipated revenues accrue the State. It may be sceptical though it is definitely not cynical to wonder if that levy might ever be applied if circumstances demand it.

There were significant acknowledgments of the European Union’s contribution to these efforts to restore our finances. Mr Lenihan used the occasion to remind us of how isolated and helpless we would be without that support. The Lisbon campaign has resumed.

What a pity it is too that various levies —health and car insurance premiums for example — were not described as what they actually are — tax increases.

These are dark times and unless we are realistic they will continue and possibly deteriorate.

Yesterday’s announcements, though embroidered with commissions and reviews and the hint of real pain deferred, were just the first in a series designed to restore some sort of sanity to our public affairs.

Yesterday Mr Lenihan focused on taxation. At the earliest opportunity he must confront expenditure and he and his Government colleagues know it.


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