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  • irishtimes.com - Posted: July 5, 2011 @ 5:33 pm

    Eaten bread is soon forgotten…

    Harry McGee

    Michael Noonan  gave a fascinating interview to RTE’s economic correspondent Sean Whelan on its website  (available here) yesterday when he set down a few markers for what to expect later on this year.

    The Minister for Finance was responding to the latest Exchequer figures which show that the books are more or less in balance. But that’s only because spending is down on profile. Revenues are also marginally down.

    While income tax is sound the more worrying subsets are disappointing returns for VAT and for corporation tax. Part of the lower than expected VAT take was attributed to the cold spell in February. But it doesn’t take a genius to guess consumer confidence is still low and people are still saving rather than spending. Noonan’s appeal to us last week to wear the Tshirt saying ‘WE ARE NOT GREECE’ and do the patriotic thing and spend money for Ireland has been falling on deaf ears.

    Whelan asked Noonan was it not odd that the take on corporation tax was down given that the only sector experiencing any kind of a bounce in Ireland was exports. Noonan said that maybe companies had invested in 2010 and had written off those investments against profits. The bulk of corporation tax, he also said, tends to come in at the end of the year (which is also true).

    What was evident from all this though is this Government’s struggle is going to be a marathon rather than a sprint. And Noonan has realised this.  And it seemed to me – though I may be wrong – that Noonan is conscious of the travails ahead and has started a softening up process for more austerity and hardship.

    1. In my view, his reference to a €4bn correction as opposed to the €3.6 billion that’s contained in the EU-IMF memo was more than just a casual rounding up. It shows that that the adjustment may need to be more severe to balance the books and bring us back on track to reach Tír na n-Og, otherwise known as the 3 per cent deficit target by 2015.

    2. He also said that the low-lying fruit as he called it  have all been picked. He warned of an austere Budget in December containing cutbacks that would be “very difficult” to achieve.

    In terms of political action, low-lying fruit translates as going after the fat cats. I was talking to a senior Minister about a fortnight ago who said that all their focus group research had shown that the electorate was willing to take pain but only if the highest paid in the public sector – politicians, judges, civil servants, and chief executives of semi states – led by example and made a greater sacrifice. And so there has been a weekly diet of the Government doing the populist and popular and easy thing (and 100 per cent correct) of slashing the pay of the best paid, knowin that their protests are going to fall on deaf ears. The judges have complained about their independence being compromised and the damage to their international reputation. NUI Galway lecturer Donncha O’Connell gave the best response to that weak argument today on News at One (listen here).

    The difficult part starts here. Has the Government been foolish in saying that there will be no increases in income tax or cuts in welfare? George Bush the First foundered on promises of this kind. His ‘read my lips’ comment promising no new taxes downed him in the 1992 US presidential election.

    It’s not that any of the oppositon are ideally placed to take advantage of any mí-ádh that the Government experiences. Fianna Fail is in a strange place at the moment, wounded, not really able to enter the fray. Sinn Fein has not really found its feet either. Gerry Adams has not reallybecome accustomed to the pace of things in the Dail as yet. Pearse Doherty’s Mr Angry routine will eventually wear thin unless he introduced more nuance and subtlety. The party has a number of very smart TDS who will really worry Fianna Fail ( Mary Lou McDonald, Padraig Mac Lochlainn and Peadar Toibin) but none have really left their mark as yet. It’s early days. The independents and technical groups are too fragmented ( that is the nature of the beast) but some of the most impressive of that group (from a substance point of view) may be some of the quietest – Thomas Pringle from Donegal South West; Catherine Murphy from Kildare North; and Stephen Donnelly from Wicklow.

    And so who’s going to inflict damage on the Coalition? Well, erm, themselves. If you had put up a not particularly bright donkey in the General Election, he would still have wiped the floor with the hapless Fianna Failers and the even more hapless Greens.

    Problem was that the main opposition parties started gettting nervous about each other and started to make promises that they couldn’t keep when they entered Government. On interest rates for the European bailout loans; on burning bondholders; on hospitals; on third level education fees; on water charges; on property taxes; on turfcutters… the list goes on.

    And the second potential conflagration will arise from internal oppositon from backbenchers to Ministers taking decisions that go against the party’s philosophy or core values. We have already seen the beginning of a Coalition rift on Joint Labour Committees and sectoral wage agreements. There will be many more.

    Another element that needs to be factored in is the danger inherent with overly large majorities. Backbenchers on the Government benches have very little to do when it comes to promulgating national policy. And the more ambitious will become quickly bored at being spear-carriers, called onto stage only to vote for Government policies. It will not take too long – espeically if things get really difficult – for the first mutinous sounds to be heard from the lobby fodder on the Labour and Fine Gael benches.

    Any one there for the last Mattie McGrath?

    People are already talking about this being a two-term Government on the basis that Fianna Fail got one hell of a pasting.

    That should not necessarily be taken for granted. Of course, it sounds the most realistic option right now given the circumstances. But a lot will depend on the performance of the economy. If the economy continues to tank and the recession and high unemployment linger, then people will begin to talk of broken promises and disappointment and failures etc.

    Though they show no signs of doing it at the moment (and Micheal Martin may not be the Moses to bring them to the promised land), Fianna Fail may be able to bounce back stronger (in the locals in three years time) and in the General Election than people currently anticipate.

    But it’s early days yet… .far too early to see anything other than straws in the wind.

    • John O'Driscoll says:

      ”Lobber foddy”. Deathless. I’m never going to think of them as anything else now thanks Harry LOL

    • citizen jane says:

      Politics in this country has never been so boring since this coalition took over. They will bore us to death. What a bunch of zombies.

    • Walshee75 says:

      Enjoyed your article but I think your point regarding FF coming back is misguided. All that is being shown is that the problems mooted by FF during their reign are even worse. I keep hearing Bertie Ahern in my head saying to the public that we may as well top ourselves. Everyday I am surprised by just how many lies that party told purely to save themselves. The depth of their ineptitude is staggering. Hopefully the Irish people will learn from this episode and return stronger and wiser eventually. Not ALL politicians were making the big decisions in FF; the main rats clearly showed their colours when jumping ship for “personal reasons”. Perhaps the days of FF should be over; perhaps the remaining polictians from FF should start afresh with a new party and draw a line under the despicible politics of yesteryear.

    • Peter Barrins says:

      Very good piece Harry and you’re right, it’s hard to know what to think. Personally I think Noonan is wise and knows what he is doing, though I could be wrong! Either he is bracing the nation for a harsh budget (which we should be used of at this stage) because it will be harsh, or it won’t be quite as bad as we will all be anticipating and we will be relieved. I read somewhere recently that costs in Ireland are 14% above EU average while incomes are 2-3% higher and therein lies the problem. The cost of doing business in Ireland and therefore the cost of products and services is excessive. Rates, energy costs, rents, regulatory costs, legal, accounting and other business services are all much too expensive. I know that even a decade ago in the multinational sector energy costs and rates were an issue and they remain so. The most significant over chargers are costs are public sector and semi-state organisations. I do not agree that the low lying fruit has all been captured. The fact remains that from the Taoiseach down our public representatives are still receiving salaries and allowances that are out of line with their European and American equivalents. There are still grades within the HSE and other State and Semi State organisations that are vastly overpaid. Many of these staff could never hope to achieve their salaries anywhere else and are therefore, technically, overpaid.

      The cuts are starting to be felt in areas where it hurts and can be seen this week with the closure of the A&E unit at Roscommon Hospital. And there are going to be others. SNAs are being cut in schools and support services for the most in need and dependant are being cut. Anything that is not absolutely essential will be slashed.

      Whether social welfare and income tax rates should remain intact, I don’t know. On balance I think that for this budget it may be a good idea to leave these as they are so that consumer spending is not further reduced. Presently spending is down but much of this is discretionary spending. If incomes are cut further consumer spending on essentials will start to reduce and with it the VAT take, sales and ultimately businesses and jobs. It’s going to be a difficult balancing act that will require aliligty, foresight, nerve and finesse.

      I thnk the opposition parties are quiet because there is a general acceptance that the options are limited and the future remains precarious. We may not be Greece but we have a set of financial problems which are arguably much more serious than those of Greece which are primarily structural. In Ireland the need for structural reform is much less than in Greece but so too is the scope for any further such reforms.

    • Peter Barrins says:

      Not sure why this is titled “eaten bread is soon forgotten…”!!

      Also, making decisions aimed at bringing the deficit back to 3% by 2015 is short-sighted and in my view should be a low priority in the conext of the real priorities.

    • m heavey says:

      It is nauseating to listen to FF TD`s in the Dail, attempting to score political points by declaiming cutbacks in the Healthcare sector. Nauseating.
      They are back to their populist worst, having themselves destroyed the economy.
      Why no words about the inflated salaries and pensions they awarded themselves and the workers in the health sector? For example, psychiatrists retiring recently with tax free lump sums of €450,000 not including pensions.
      Morality my backside.
      We do not deserve the title of Nationhood.
      We could not run the proverbial in a brewery.
      We are a joke Nation run by numptys.

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