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  • irishtimes.com - Posted: November 14, 2009 @ 12:50 pm

    Hard Lessons from the Decade of Greed

    Harry McGee

    We have seen the full gamut of clever debating techniques employed by politicians and unions in the past couple of weeks.

    There is deflection:

    Such as: “People are missing the real scandal here. The Government is bailing out the banks while squeezing public services.”

    There is transference:

    “Public servants aren’t to blame for this miss. The people to blame are the bankers and speculators who brought us to this sorry mess. Yet it’s the public servants who are targeted and victimised.”

    There is spotting a tiny flaw in your opponent’s argument and even though it’s not related, using it to bring down the whole edifice. Alastair Campbell was really good at manipulating this argument in his day:

    “The Special Purposes Vehicle (51 per cent owned by private interests) was secretly inserted into the NAMA legislation and proves that the Government’s entire motive is to protect its banking and building buddies. It shows that it’s all a con job and we’re going to end up paying.”

    (It’s clear that a lot of people who have condemned the SPV device  don’t have a clue why it’s there and what it does. And that includes the hapless Minister for Agriculture Brendan Smith, who flailed along on the Week in Politics two week ago, way way out of his depth as you can see for yourself here)

    Other techniques too. Biased assimilation for example. That essentially means being totally deaf to any argument that might damage your thesis while grabbing on to any argument that may help your cause.

    We can talk until the cows come home about how much the Fianna Fail-Government has messed things up in 12 years of power. But none of that is going to unwind the clock, or magic away the problem. Sure, the craven reliance on property and assets was a journey on a road to perdition. But we were all willing fellow travelers especially when everybody’s house was worth half a million or a million on paper. There is a psychological observation of mass behaviour in the money markets. It has been described as irrational exuberance. Everybody, like starlings, flocks after soaring markets. Rational assessment disappears – everybody gets carried away.

    We can blame the political class up and down. But the phenomenon was wider and more complex than that. Complicity extends to the banks, to the construction companies, to business, and yes, to Joe Citizen on the street. Any political party that would have been brave enough to say the emperor has no clothes during the Decade of Greed would have been committing an act of political hari kari. Especially in 2007.

    Winning slogans for 2007 General Election:

    We all Need to Tighten our Belts

    House Prices Need to Come Down

    We will increase taxes on income and property.

    Are we as citizens entirely blameless in all of us? We voted them in after all. In election after election. It annoys me to see citizens portraying themselves as passive and victimised, as is they were gormless enough to allow politicians to manipulate and dupe them.

    And I’m beginning to resent lazy descriptions of politicians as incompetence and corrupt and in it for themselves etc. They didn’t appoint themselves to their positions in Irish society. We did. And by condemning them in that blanket fashion you are saying one of two things.

    1. I am also blaming myself.

    2.  Intellectually, I am above the lumpen proletariat who are too thick to do anything else other than elect a parliament of fools.

    Onto the present. To use the cliche from the Northern Peace Process. We are where we are. Well, where we don’t really want to be.

    I have some reservations about NAMA. Perhaps nationalisatoin would have been better (the €7 billion premium would not have arisen). The fees and other costs of €2.6 billion over 11 years also seems grotesquely high.

    However, I have no doubt in my mind that a rescue package was needed for the banks, no matter how unpalatable from a moral point of view. And that it would necessarily inflict pain on the taxpayer. Nationalisation is not a zero sum game. Neither is letting the banks fail. None of the choices were easy. None would have been cost free.

    I also strongly believe that the bank crisis must be separated from the crisis in public finances. To me, it’s obvious, a no-brainer. For this reason. This year, State income has fallen by over €20 billion. That’s 20,000 million for a nation with a population of 4 million. And State outgoings have increased to €54 billion.  The mathematics of that is obvious. It’s unsustainable.

    And the mathematics of the public services is also relatively straighforward. Roughly a third of all State spending is on salaries. More than a third goes on social welfare. The rest goes on services and adminstration, that has already been cut back. The Government’s €4 billion cut can’t be taken from services alone. In my opinion, there is no choice but to look at wages and at welfare.

    Having said that, I don’t agree with the ‘no tax’ strategy. There is some scope for raising the percentage of tax take (capital gains tax, capitals acquistion tax etc) that were slashed during Charlie McCreevy’s time. All shelters should be closed. There is also a case for a third rate of tax, though with no more than a very small increase in the marginal rate.

    As for the public versus private debate, I know of very few private sector workers who haven’t taken pay cuts this year. We live in a society where half a million people (13.75 per cent by the end of next year) are unemployed. It’s awful simply awful. And the Government needs to start moving might and main to come up with a decent jobs strategy. And the Minister, Mary Coughlan, needs to show what she has failed to show until now, that she is up for that challenge, and up to that job.

    I belive the public service have to pay their share. Of course, that means pain. But the truth of the matter is that they remain in an advantageous position.

    Like upward-only rent reviews on Grafton  Street,  it seems benchmarking is considered by the public service to be a one-way street. NUI Maynooth economist Jim O’Leary told this newspaper last week that benchmarking was a boomtime phenomenon. He has argued (and I know that unions take issue with this) that two ESRI studies from 2003 and 2006 show that public servants had a 10 per cent premium over their private sector counterparts before benchmarking. That rose to 22 per cent after the first round of benchmarking was paid.

    It’s not just public versus private who are split.  There are tensions within the public service family between those on low wages and those on astronomically high salaries (senior officials on €150,000 plus and hospital consultants who get paid voracious salaries from the public purse).

    Then there is the divergence between those on salaries (with few allowances) and those frontline staff whose basic salary is augmented by a blizzard of allowances and overtime payments. Colm Keena’s article on Garda allowances (read it here, it’s really eye-opening)  showed the ridiculous practices that had grown up like a weekly boot allowance, even though boots are supplied, and the special premium paid to desk-bound staff to compensate them for the fact that they can’t claim overtime. It’s madness. And costs the taxpayer €215 million each year.

    There is fat in the system that can be rid off without hurtling people into the financial void. Public service unions are always good at highlighting the plight of low-paid workers earning €30-40,000 out. But you must remember that over a tenth of public service workers (some 46,000 according to 2007 figures) earned €70,000 a year and more in salary (and as far as I can tell, that’s not taking allowances and extras into account).

    And at a time when everybody in the private sector is taking cuts, or worse, it begs one very simple question.

    If public servants were benchmarked up during the boom years, why can’t they be benchmarked down now?

    • Paul O'Brien says:

      This is a neat synopsis of where things are at and what needs to happen next. It should be compulsory reading for anyone going on strike or broadcasting an opinion on the ‘state of affairs’. We need more of this type of arm’s length analysis.
      Well done.

    • No-moss-gathered, Dublin says:

      Downward Benchmarking assumes there was Benchmarking at all – largely there was none. Headline cases of some high earnings (at times) in the private sector were eased politically by this system which Senator Joe O’Toole, leading Trade Unionist described as like “walking up to the ATM” i.e. it’s money for nothing extra – money thrown at the public sector for no additional productivity and paid for by ‘temporary’ taxes derived from boomtime activities like stamp duty on property or VAT on volume sales of consumer goods was never going to work for more than the boom lasted and it was never going to last ad infinitum.

      There are always people who are ‘starting off’ at some stage of their major lifecycle economic purchases such as getting a first permanent job, funding an education, buying a property etc – somebody will always be ‘caught’ when the market turns – and it always turns. Fianna Fáil were especially arrogant but Harry is right, no other party leader derided populist electioneering.

      Weak politicians in all parties who as Dan O’Brien pointed out in last Saturday’s Irish Times (07-11-09) have more of a vested interest in continuously being elected than in nation building served the country as a whole very badly (but they don’t still believe it!) – potholes are still the currency of votes in much of the country.

      Lack of downward wage / levy / cost flexibility in the public sector means that culturally Ireland must always have a vibrant private sector in areas where good public services would make better sense. Vested interests in the Health Services for example push costs beyond normal medical inflation.

      A debate on people voting not for potholes but politicians who have new challenging ideas on regional,national and international matters would point us all in a better direction economically, socially and politically.

    • Marion says:

      A few simple tips for the budget

      1. CHILD BENEFIT.

      Firstly, we need to stop paying Benefit for non-resident children of foreign nationals.
      Secondly, cutting Child Benefit penalizes ‘stay at home mothers’, research has proven that children are better off at home and also, with jobs so scarce at the moment (and the women’s libbers would hang me for this!) we need to encourage more single income families to help spread employment around.
      There are very few families in Ireland at the moment that don’t need Child Benefit, so if there must be cuts then we need to make them across the board.

      2. HEALTH SERVICE

      Medical and G.P. card holders should have to pay at least ten euro towards their care. This will stop some from causing overcrowding in hospitals and GP surgeries unnecessarily and also create huge savings.
      We also need to look at Consultant’s huge salaries in relation to the short hours they work.

      3. PUBLIC SERVICE.

      We cannot treat Teachers, Nurses, Gardai, Civil Servants and Prison Officers as the same, as they have very different employment conditions:
      Over the last few years many schools have been given funding for extra teachers but these funds have been used for resource teachers, who receive the same salary as mainstream teachers but only teach one or two children a few times a day. It is becoming apparent that this practice is of no benefit to the children and at the moment most schools have one resource teacher for every three teachers.
      Gardai, Prison Officers and Nurses are aware at the start of their careers that the are not signing up for a 9 to 5 job. There should be no overtime or “out of hours” allowances paid to these professions. They are already over-staffed and should have enough employees to cover all hours.
      Civil Servants do not get any bonuses or allowances and have very little opportunity for overtime, however it is widely known that a lot of civil servants do very little work – this is the fault of management and poor attitude to work. This needs to be addressed with a whole overhaul of each dept. (Demote where necessary)

      4 CARERS ALLOWANCE.

      This allowance was introduced for 24 hour carers of people with serious disabilities but is now being abused to a serious extent – husbands and wives claiming for each other and people claiming for looking after relatives with minor ailments. People need to realize that it is their duty to look after their families for better or worse and they can no longer expect this windfall for doing so.

      5 SOCIAL WELFARE.

      It should not be lucrative for young women to become single mothers.
      A huge percentage of Social Welfare staff should deal with investigating fraud. We are a very dishonest country and the tax-payers can no longer support welfare fraud.
      We also need to cut rent allowance as it is far too high and most landlords and tenants form an agreement in order to cheat the government into paying more.

      6. LOCAL COUNCILLORS .

      What are they for? What do they do? Why are we paying them?

    • Tedser says:

      I think the real divide is not between public and private workers but, and particularly after the budget, between PAYE workers and others. There is never a loophole or tax shelter for any PAYE worker, nor should there be, but what about applying that across the board. It’s probably not possible.

    • Ray D says:

      Public servants got one benchmarking award. That was an average payment of about 9% and was based on relativities in 2000/2001. It was paid in 2005. No one could object to such an occasional exercise but only on a reasonable basis – not on a crisis basis. There was a further benchmarking exercise in 2006/7 but the announced awards were not paid out. Reasonably then we could expect another exercise in say 2013/2014 with the outcome announced say 3 years later.

      What the Government are doing now by cutting pay is making the recession worse, They made savage and swingeing cuts in public sector pay last year and the results were catastrophic. I know many poorly paid civil servants who will not be in a position to pay their recent massive mortgages if a reckless and savage further cut is now embarked upon. There is no need for this nonsense.

      Three simple measures would, for example, yield a cut of more that €4,000 million. One. stop paying money into the pension reserve. This is not fit for purpose and has already been raided by the Government for other purposes in any event. Secondly cut €2,000 million from the Public Capital Programme. This will bring no dimunition in the programme since tender prices are now at Nineties levels. Indeed it will ensure that inflation in the building industry does not start again and will ensure that tenders stay at reasonable and sustainable levels. Thirdly the ODA budget should be cut by 60%. These three measures would have no negative effect and would raise more that 4,000 million.

    • Kynos says:

      1. Above is correct for me. Probably 2. as well if I’m to be honest. Cheers Harry that sorts it out. Why I believe that a politician is first and foremost to be treated with utter suspicion in everything they say and do. So I’m a cynic. Only started taking interest in these things in 2003 and nothing I’ve seen since has done anything but convince me that where you see a politician the sleaze is never far behind.

    • Ray D says:

      It might be a neat synopsis if it were true but it’s not. Its anti-public service bias shines through. It should be ignored as it’s not a realistic contribution to the debate

      He knows a few private sector workers that escaped pay cuts this year, I know a few private sector workers that got a pay increase. All public servants took a hefty pay cut this year.

      Also how many public servants earn over 150 thousand. It’s less than 1%. There are infinitely more public servants earning less than 30,000 a year. They have taken pay cuts that they cannot afford and, ridiculously, are being lined up for more this year.

      He refers to the first round of benchmarking. The second round very well based recommendations were not paid.

    • Harry says:

      Thanks for the comments. My opinion is only my opinion and I don’t pretend to be omniscient or to have special God-given authority, moral or otherwise, One of the difficulties I have with some of my fellow commentators in the media (yes, including in this newspaper) is this unamiguous unquestioning belief they have in their own authority. As you can see from the tenor of the above comments, I believe strongly in the above comments but hope that I’m open enough to be swayed by arguments to the contrarty.
      To Ray D. I belive those earning 30,000 and below should be left unaffected.
      But there are still 47,000 earning €70,000 and above in basic salary. They have to pay their share.

    • Eoin says:

      All good Harry but…..there have been two wage adjustments for public workers in the last 10 months, 1 for everyone else. The tax base *is* too narrow but wealth is only thought of in one way – as earned income on the basis of work.

      Oh yea, and no party is going to put “we’ll put up your taxes” posters up, agreed. But when do we get an honest dialogue about what it is we want for ourselves and how to pay for it?

    • Dan Sullivan says:

      Harry, I do blame myself. I blame myself for not being able to convince people they were wrong to support the policies that were advanced over the decade from 1997 to 2007. I didn’t make the case convincingly enough or to put sufficient effort into it. I failed in my role as a citizen of this republic. That I’m not alone in that doesn’t abolish me from that responsibility. That I failed then doesn’t mean I’m going to stop now though.

      There is a dangerous narrative of denial out there coupled with the constant over egging of positions, from those who hold that it is either the case that every last person is equally to blame (which is used by supporters of FF in order to reduce the difference between what they did and what others might have done suggesting that parties or individuals who were not in power would have do the same thing and sure aren’t we all the same) or the other extreme which is that this is all the fault of a few people, the fat cats.

      And we have those whose refrain is either that large sections of Irish society didn’t gain at all, not a penny or a cent in the last decade and more or that people have lived like kings on social welfare. The other problem is that this should be about a process of reform and that process if it were based on bench marking would involve reduction in the salaries of those at the higher levels, but the public unions won’t concede this point because they (the union reps are the ones on the higher level salaries.
      We have people like Garda Inspector Seamus Gallagher at the public service march in Limerick quoted as saying “public service workers have gained nothing over the great years of the Celtic tiger”. http://www.limerickleader.ie/news/Thousands-attend-Limerick-protest-march.5803610.jp

      Nothing, not a sausage, nothing gained at all; really? Did other people gain more? Yes but how that translates as gained nothing I simply don’t know.

      As for what we should be doing right now. What I can’t understand is given the government’s entrenched unpopularity and the fact that the Greens have for good or ill tied themselves into staying with FF that the government isn’t trying to do as much now as they possibly can ASAP with the possibility that they might be able to ease off in 2 years time. McCreevy did this in 2002 but not to the same extent as the problem wasn’t as great. In effect, go for broke since they’re broke already. If you’re going to be hated then be hated for doing what is needed and don’t be mealy mouthed about it.

      The notion that changes in Social welfare rates or public service pay would have major impacts on the economy when the economy is likely to decline over 10% or more over the period of the downturn, given that the money to fund that economic activity must be borrowed and its repayment will prolong the downturn.

      What would I do? Increase the tax bands, have a minimum tax rate of 10% for those on the minimum wage as they had in the UK up until recently. Introduce a premium levy of 10% for the higher earners to be transferred into a new tax rate after 2012. Reduce the basic pension to 200 per week, and the JSA to 190. If the cuts are to be portrayed as draconian then at least make sure you get the budgetary benefit of having made them. Making half- hearted changes that leads to you being pilloried in the press and yet doesn’t do much for the deficit is pointless. Signal that you are starting a process reform of the PRSI system such that for some younger people who have not to date paid much in the way of PRSI that a portion of the JSA say €10/15 of it will be paid back once they are working in a reduction in their tax credits. This would convert some of the SW bill into an asset as it would be loan or an advance. I would also start a process of moving to a basic income scheme with the view of dismantling much of the social welfare system and the redundant administration of same. Swingeing

      The massive mistake made last year was the tentative and Hodge-podge nature of the changes. I believe that this time last year the cabinet still hadn’t to use their own phrase “internalised the scale of the problem” or the duration involved in making the adjustments. They were still thinking that some sign of an upturn might save them if they could only ride out the coming months. If the government had for example not increased social welfare at all then the pensioners protest would have been a drop in the ocean compared to others, the problem is that in making only a few headline changes that they left themselves open to attack on those specific issues. This time they need to be acting on all fronts and if the press is primed to characterise the cuts as swingeing then make them swingeing, better to hang for fixing the problem and not for simply tinkering with it.

    • Dan Sullivan says:

      “But when do we get an honest dialogue about what it is we want for ourselves and how to pay for it?” we get that when we vote for it and reward those who engage in it and when we berate our friends, neighbours, colleagues and relations for supporting those who avoid addressing the problems they are paid to address instead addressing the problems that get them elected.

    • Harry says:

      Fair points Dan. My own beef is: I have been getting sick to the teeth lately of people lambasting politicians as a class, just because they are an easy mark.
      I can understand your frustration and alos think your analysis is spot on on how the Cabinet belatedly realised thhe gravity of the problem confronting it.

    • Kynos says:

      I’m sorry Harry but the fact of the matter is that the dishonest venal and corrupt gestalt of our political class (not tarring individual members, just the class) that has its antecedents in the old IRB days when to put one over on authority was morally obligatory, and which was given such a turbo-boost by the dishonest corrupt Charles Haughey and indeed an acolyte or two of his subsequently, is very much to do with where we find ourselves today. Pushed to the limits of our endurance, so many of us who work hard and pay our taxes and ask nothing from the State but that we be treated with a little respect. I feel myself entitled to excoriate any politician, class of politician, group of politicians, or just the whole damned shootin match for what they’ve done to this country. God knows some of us were on here predicting this would all come to pass long enough. If you can nod and wink at Ireland’s betrayal to cowardice inhumanity and rapine, at Ireland’s lucrative participation in illegal immoral imperial wars and state policies of torture, then you can nod and wink at anything. This is simple truth, and my god we see how true it is now.

    • Kynos says:

      Talking with a few of my colleagues the other day the consensus was that we are, effectively, paying 57% tax on our incomes already when you compute it all up. How much more can they screw us for before violence erupts on the streets? Not that I would advocate such a thing. I note the Minister for Justice has already outfitted our Defence Forces with 300K’s worth of new riot-gear. No posse comittatus law here. Imagine. The government contemplating using the Irish defence forces to put down Irish citizens. They know what’s coming. They know how bad it is. They won’t tell us the truth. They’ve nobody but themselves to blame when this all ends in tears.

    • Kynos says:

      That said, power derives from two sources. Money and people. If you haven’t the one you need to have the other, or at least give a convincing enough impression to the Enemy that you have it. Back in medieval Italy the original playing card suits were symbolic of the classes, and the state of constant tension in which they co-existed. Aces, or swords, were for the nobility. Hearts, or chalices, for the clergy. Diamonds for the merchant traders. And clubs for the peasants. The have-nots must always club their way, lacking the finesse sophistication and impermeable barrier of class and selective breeding enjoyed by the Elites. Gandhi showed a different way, it is true, but then he was up against the British Establishment, which at least payed lip service to its rules about fair play. He wasn’t up against Fianna Fail and its owners and controllers, that knows no rulebook. So I suppose it’ll just have to be clubs then.


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