The big issue for any Fine Gael/Labour programme is the ratio of cuts to tax increases, wrties STEPHEN COLLINSPolitical Editor
THE PRE-BUDGET plans published by the two main Opposition parties contain some significant differences on fundamental issues as well as common approaches in a range of areas. Fine Gael accepts the targets agreed between the Government and the EU-IMF team for next year’s budget while the Labour Party rejects it.
There is also a serious difference of emphasis on whether tax increases or spending cuts should underpin the four-year adjustment. When it comes to the finer detail there is a lot of agreement between the two parties and nothing that would make a coalition unworkable.
The first obvious big difference between them comes on the scale of the adjustment for next year. Fine Gael accepts the target of €6 billion agreed by the Government, although it argues that there is an easier way to get there than the one outlined in the four-year plan. Labour doesn’t accept the basic target and makes a strong argument that a €6 billion adjustment is incompatible with recovery and growth. Instead it proposes a €4.5 billion target for 2011.
The difference between the parties will be academic if the Government gets its budget and the attendant Social Welfare Bill through the Dáil next week. In fact the passage of the budget will let Fine Gael and Labour off the hook even though both parties will vote against it. Not only that but the passage of the budget would actually make it easier for the two main Opposition parties to agree on a programme for the following four years as the frontloading of the heavy lifting into 2011 would give them the flexibility to compromise.
The biggest of those problems is the proportion of the adjustment that should be met by cuts and taxation. In theory Fine Gael is even more committed than the Coalition to limiting tax increases, favouring a ratio of cuts to taxation of three to one compared to the Government’s target of two to one.
In its document Fine Gael commits itself to a €15 billion adjustment over the next four years with €6 billion of it coming next year. The party, however, says it will limit tax increases to half the levels proposed by the Coalition over the next four years.
Party leader Enda Kenny said the plan would be built around three pillars. Tax increases would be limited to one-quarter of the adjustment next year and one-third of the total adjustment over four years. The second pillar would be radical public sector reform to end waste, inefficiency and duplication, starting with the political system. The third is a jobs and stimulus plan.
Fine Gael reiterates its opposition to cutting the minimum wage but proposes a reduction of 35 per cent in the number of national politicians and the closure of the HSE and Fás.
Labour says it would bring in a total adjustment of €5 billion next year but put €500 million back into job creation to give a net figure of €4.5 billion. The party favours a new higher income tax rate of 48 per cent for single incomes above €100,000 and (like Fine Gael) an increase in Dirt, a tiered system for capital taxes and a clampdown on tax exiles.
Labour also proposes to cap all public sector and political salaries at €190,000, which would be the salary paid to the taoiseach. The party also opposes the cut in the minimum wage saying it favours a negotiated wage freeze for three years. A fees commission would be established to investigate and control professional fees with the power to recommend the use of maximum-price orders in some areas, such as doctors’ fees. A reduction in public service numbers through voluntary redundancy is suggested.
The big issue to be settled in any Fine Gael/Labour programme for government is the proportion of cuts to tax increases. The Fine Gael approach is broadly the same as that of the EU-IMF but Labour has taken a very different stance.
Agreement on a new higher rate of tax, the elimination of remaining tax shelters and a clampdown on tax exiles is perfectly feasible but the gap between them is so wide on the basic approach to tax and spending that it could prove a difficult hurdle in negotiations.
Both parties emphasised job creation and agreement between them should not pose any problems. Finding the money for such initiatives is a different story but that is something both will learn the hard way.
While Fine Gael and Labour will not be bound by the detail of the EU-IMF package they will have to come up with alternatives of their own if they want to drop any items. That in itself will be a useful discipline.
An agreement is far more likely than not, regardless of the differences in emphasis. The two parties have worked together in the past and, at a leadership level, they have good relations, despite the natural rivalry in Opposition.