Budget must go beyond paying lip service to fairness

INSIDE POLITICS: Talking the talk on sharing the pain will not suffice for a Coalition that continues to defend its indefensible privileges

NEXT MONTH’S budget will be a moment of truth for the Coalition and it really needs to come up with a bold gesture to show the public that it is going to lead by example when it comes to the imposition of further hardship.

An analysis of the generous ministerial pension regime published earlier this week by The Irish Times was a reminder that the elite among the political class are still pampering themselves, despite the severe cutbacks affecting other members of society.

The analysis put the market value of the pension entitlements of the current Cabinet at €36 million, but it did not take account of the far greater cost of paying very generous pensions to a range of senior politicians who have already retired.

The actuarial cost of that would easily exceed €100 million. For instance Mary Robinson has an annual pension of €187,297 for her 6½ years in Áras an Uachtaráin and 20 years in Seanad Éireann.

Funding a pension of that magnitude for somebody in the private sector would cost a minimum of €6 million and possibly much more. The pensions paid to former taoisigh and former government ministers are not far behind, ranging from about €120,000 a year for most of the ministers in the last government to over €150,000 for Bertie Ahern and Brian Cowen.

Robinson and Ahern have gifted part of the pensions back to the State, but their entitlements are extraordinary and appear to be wildly in excess of the pension arrangements for public figures in other EU countries.

Given the scale of the financial crisis facing the country, and the fact that it has taken the bailout to keep the State functioning for the past two years, it is amazing that no effort has been made to scale back the pension entitlements of former as well as current politicians.

As with other parts of the public service, new entrants into politics in 2010 suffered a significant reduction in entitlements and will be able to claim pensions only at the age of 65, but for the older generation of politicians, almost all of the entitlements they amassed during the boom are intact.

To be fair the current crop of politicians have taken a series of pay cuts since the start of the crisis but their salaries are still among the highest in the democratic world and those already on pensions have hardly been touched.

The excuse given by Minister for Public Expenditure and Reform Brendan Howlin for not touching some of the most privileged pensioners in the country is that they had “a legitimate expectation” that the current arrangements would continue to apply, regardless of the pressure on the State’s finances.

Strangely enough “legitimate expectation” does not seem to apply to those outside the public service. People in private sector pension schemes have received letters in the past two months informing them that their future entitlements will be cut as a result of the levy on pension funds introduced by the Government last year to fund its jobs initiative.

Politicians are not the only ones to benefit from enhanced public sector pensions. Judges, semi-State senior executives, Army officers and gardaí all benefit in varying degrees from a system that nobody in the political world appears willing to challenge.

How public service pensions of all kinds will be funded in the future is an issue that will have to be faced at some stage. The most recent estimate in 2009 of the accrued liability to the State for public service pensions was €116 billion.

Given the flood of early retirements since then, that figure is now undoubtedly much higher. An official report published during the week pointed out that public service pensions now account for 14.8 per cent of the annual pay bill, up from 8.5 per cent in 2007.

The figure has risen by 67 per cent – up from €1.5 billion in 2007 to €2.5 billion this year. Yet the political system is paying scant regard to how this escalating liability can be put on a sustainable basis into the future.

The immediate danger facing the country as it heads into its final phase of reckoning for the excesses of the boom is that the contrast between the way different groups have been treated will lead to a breakdown of the social cohesion that has been such a feature of the crisis.

About 75 per cent of the adjustment required to get the State’s finances back on track has already been achieved. The final 25 per cent is probably going to be the most painful of all and it will take a lot of political skill and courage to see it through to the end.

That is why it is imperative that the Coalition comes up with a budget package that demonstrates a genuine commitment to fairness rather than paying lip service to the notion while continuing to protect its own privileges.

The unremitting focus by the Coalition and its opponents on the bank debt has, if anything, only obscured the real choices facing the country.

The Government has overhyped the scale and timing of a debt deal while the Opposition has been far too dismissive of its prospects.

The likely outcome is that a deal on the debt will ultimately be done but it will not happen quickly and the precise nature of the arrangements will probably not become clear until the end of next year.

Just as Albert Reynolds got the £8 billion from the EU in the 1990s, despite the dismissive claims of his political opponents and media critics, Enda Kenny will most likely deliver a substantial deal on the bank debt, but it is going to take time.

The more critical challenge facing the Taoiseach and his Government is the fact that the public finances remain in a parlous state due to the collapse in tax revenues after 2008, combined with the failure to rein in expenditure. So far the Coalition has managed to keep on course towards a more sustainable budgetary position, but imagination as well as gritty determination will be needed to see the job through.