Politically tricky McCarthy proposals now under active consideration

 

Even measures as unpopular as a flat-rate household service charge are in the mix in the search for savings, writes HARRY McGEE, Political Correspondent

THE GOVERNMENT is not expected to make the final decisions until the late autumn on how it will achieve €3 billion savings in public spending.

But by the close of yesterday’s Cabinet meeting in Farmleigh – the first formal meeting devoted to the budget this year – there were some indications of where the axe might fall in 2011.

It has been known since December that the capital budget for 2011 would be cut by €1 billion. The Government has argued that greatly decreased costs in construction since the economic downturn have allowed the State get more bang for its buck when tendering for public projects.

It has argued that even with a €1 billion reduction in the capital budget, spending will amount to 5 per cent of gross domestic product. This is the Government’s stimulus programme. Projects such as Metro North and the Luas extensions will provide many construction and related jobs.

Yesterday, Ministers leaving the meeting confirmed that the bulk of the €2 billion savings on the current side will come from cuts rather than new taxes. To that end, some of the more politically tricky cuts identified by “An Bord Snip Nua”, chaired by Colm McCarthy, are now under active consideration. The McCarthy report made recommendations for cuts that came to almost €5 billion, many of which have yet to be implemented.

All the indications so far point to the Government looking for €1.5 billion in departmental cuts, with the remaining €500 million being made up of additional revenue.

In the run-up to yesterday’s meeting, both Taoiseach Brian Cowen and Minister for Finance Brian Lenihan had, to all intents and purposes, confirmed there would be no property tax in the budget, though a “site valuation tax” is included in the programme for government. Mr Lenihan told a Fianna Fáil parliamentary party a fortnight ago that such a measure would need a huge amount of preparatory work that had not yet begun.

The following weekend, Mr Cowen told RTÉ’s Week in Politicsthat such a tax “involves a major structural change”, all but ruling it out.

Similarly, another programme for government aim, water charges, is likely to be long-fingered because of the cost and complications of installing meters. The Taoiseach said in the same interview that the Government parties were ad idem about being as fair as possible. A flat charge for water without proper metering being installed would not achieve that. He would not commit himself to saying when water charges would be introduced.

While neither a property tax nor water charges are likely to be announced in the budget, there remains a possibility that the Government may impose some indirect taxes in the form of a flat-rate household service charge. While politically unpopular, this might be explored.

None of the choices facing the Government in relation to raising revenue is very palatable. At present, those earning less than €18,300 per year, some 50 per cent of workers, lie outside the tax net. By adjusting tax credits and broadening the tax base, some of these workers could be asked to pay tax, a change that could yield between €300 million and €500 million per year.

Several Cabinet Ministers, including the Taoiseach, referred to jobs and competitiveness as primary concerns. However, in his recent RTÉ interview, Mr Cowen did not directly respond to a question about the lowering or alteration of the minimum wage, other than to say that the Government wanted to “go out and show the international community that we are open for business”.

Alternatively, the possible introduction of a new universal social contribution – which would replace the income and health levies, as well as PRSI – could also be extended to lower-paid workers.

On the expenditure side, while each department has been asked to prepare its proposals for cuts and efficiencies, the substantive discussions will begin only from September when bilateral meetings are held between the Department of Finance and individual departments.

An average cut of 5 per cent in each department has been mooted, with the Departments of Social Protection, of Education and Skills and Health and Children expected to bear the brunt of the cuts. It is also expected that one of the key elements of the McCarthy report – the reduction in the number of State agencies or quangos – will be tackled. The Government spokesman said last night that the “McCarthy report is still there to be used as deemed necessary”.

For its part, the Green Party has said it is fully committed to the €3 billion in cuts, notwithstanding the ambiguity and uncertainty voiced by its finance spokesman Dan Boyle at the MacGill Summer School in Glenties this week. On the record, the party has said that it wants to protect education spending as well as homeless funding.

“There must be cuts but they must be as equitable as possible. That is what we are working towards,” said their spokesman in Government yesterday.

In the wake of the Croke Park agreement between the Government and public sector unions, the salaries of public employees are protected. Therefore, cuts in departmental budgets will lead to cuts in services. A focus of the continuing discussions will be “politically proofing” cuts to ascertain their effect on the public. The Government wants to avoid, if possible, unpopular and politically damaging budget-day decisions, such as the scrapping of pensioners’ medical cards in 2008.