A Fine Gael tough budget would restore confidence


OPINION:We need a new top tax rate, the metro must wait and Dáil costs have to be cut – right now, writes ENDA KENNY.

THE ACCELERATING pace of job destruction, the loss of confidence in our banks and the spiralling Government deficit are inextricably linked.

The Government has failed to stop the haemorrhage of jobs in large part because it has failed to restore access to credit for businesses by fixing the banking crisis. And it failed to fix the banking crisis because the markets are losing faith in the Government’s guarantee to our banks.

The international markets are losing faith in the guarantee because the Government has failed to stop the public finances from spiralling out of control at a pace that has not been seen in any other country in the world. And it has failed to stop the public finances from spiralling out of control because the measures it has taken so far have been limited, partial, selective and unfair.

There are many things that need to be done to improve the situation of our struggling small businesses, exporters and job seekers. But nothing will have much impact unless we take the hard decisions now to mend our broken public finances.

That is why I believe it is long past time for the Government to end the current state of denial and prevarication.

Its strategy for the public finances and wider economy is clearly failing, and both the Irish public and international markets funding the banking system and our Government are losing patience.

We no longer have the luxury of the time needed for long consultation processes by Government advisory groups before taking further decisions on public spending, reform and taxation in 2010. It is better that we take decisions for ourselves now, than force outsiders to do it for us later this year.

Ultimately, this is about our financial independence.

That is why I am now calling on Government to announce that it will, within the next month, deliver a new budget that substantially cuts the €40 billion Government borrowing requirement for 2009 and 2010 combined that is being forecast by most independent economists.

If Fine Gael were in government in the morning and I were taoiseach, that is what I would be doing.

To achieve this, the new budget must be ambitious, wide-ranging and comprehensive in its scope. It has to be fair and proportionate in its execution by showing what role is being played by all groups in society, particularly those who are in the best position to contribute more.

It has to look not just at spending cuts but at additional tax and other revenue-raising measures that can drag our public finances back under control. Fine Gael will enter this debate constructively. I have asked Richard Bruton to prepare our own strategy in this regard. Nothing is off the table on our part.

We will look at ways of increasing taxes and broadening the tax base into new areas that do not fundamentally damage our competitiveness and economic model. We must also look to ensure that the valuable role played by so many of our voluntary groups is protected and recognised.

Our approach will be driven by the principle of those that have most should contribute most.

Fine Gael will look at options, such as increasing the top rate of income tax, look at the scope for a new top rate of tax for those on very high incomes and finally, we will look at the introduction of a carbon levy at, say, €25 per tonne of carbon.

These are the types of measures on the tax side that we believe now need to be considered.

Also on the tax side, we should be looking at abolishing stamp duty and replacing it with capital gains tax on sales of houses of the super-rich .

We will look at which infrastructure projects can be safely deferred or abandoned. That means that some projects, like the metro projects in Dublin, would be put on the back-burner. We would scrap the old National Development Plan and reprioritise smaller, labour-intensive projects that can keep as many tradesmen and builders employed as possible.

Fine Gael would push ahead with its proposals to control public sector pay, such as the pay, increments and bonuses freeze for two years, a targeted programme of back-office staff redundancies and pay cuts for those on higher incomes. We originally said that the pay cuts should only affect those earning more than €100,000 but, given the current state of the public finances, that threshold should now be lowered.

Most of all, we will look at radical reforms to our budgetary system that squeezes out waste and poor value for money. That means tackling the big bureaucracies like the Health Service Executive and Fás and driving substantial savings in their bloated back-office structures.

It also means at a Governmental level cutting the number of junior Ministers, cutting the Dáil committees by 10 and reducing the numbers of staff that prop up Ministers’ press and constituency operations.

Not everything can be delivered in one go. But we will leave no doubt as to what we intend to achieve in Government and how. I encourage other parties to do the same.

Some will say that further spending cuts and tax increases will only further damage the economy at this delicate time.

I was also once of this view, but now believe that the opposite is the case. Families and businesses already know there is serious pain ahead. But what is holding them back from getting on with their lives and business decisions is the uncertainty about what form this pain will take, and how long it will last.

This has to be faced up to with a sense of realism.

Many of the fundamental strengths of the Irish economy remain in place – high levels of education, a flexible and skilled workforce and a pro-enterprise tax and regulatory environment. But what is killing the economy, and by extension our society, is the fear and uncertainty stemming from the obvious lack of a credible and widely supported plan to deal with our broken public finances and banking system.

If we don’t tackle this problem, we won’t get our people back to work.

I believe that if the Irish public and the international markets see a Government with a plan, one that is ambitious, specific, fair, all-inclusive and widely supported and one that does not defer difficult decisions on tax and public sector reforms to future years, then confidence can be restored.

Funds could once again flow through our banks to small businesses, homeowners would finally get some respite and the draining of jobs and hope from our economy would start to be reversed.

Enda Kenny is leader of Fine Gael