The Government needs to regain control of the discourse over why cuts of €4 billion are needed, writes NOEL WHELAN
IRRESPECTIVE OF whether it gets good or bad news from the result centres today, the Government will get little respite. A No vote will have seismic political consequences at home and abroad, the nature of which will probably overwhelm Brian Cowen and his Cabinet.
A Yes vote, on the other hand, will have settled one of the four major projects now on the Government’s agenda, enabling it to turn its attention to some of the others.
The process of designing and communicating the budget requires immediate attention, not least because the trade unions and interest groups have taken the initiative in shaping the narrative in recent weeks. Some of the initial momentum generated when the McCarthy report was published in mid-July has been lost. While the report received widespread coverage initially, it has got relatively little exposition since the holiday break. Much of the recent reportage has focused more on the impact suggested by various interest groups than on the content of the report itself.
The situation has not been helped by the indiscipline shown by some Government members. At this stage, five different Ministers have gone on record to distance themselves from particular provisions of the McCarthy report. Martin Cullen has been particularly verbose, cosying up to his sectoral constituency by dissing the report on four separate occasions in a manner that would in any other circumstances have given rise to a Cabinet sacking.
It is not clear what Ministers hope to achieve by these utterances. Both the Minister for Finance and his officials appear impervious to these supposed shots across the bow. They have instead busied themselves sending the relevant McCarthy report extracts to each department, not only asking for observations but also requiring the department to specify an alternative equal saving to any McCarthy recommendations that they oppose.
Ministers should be sweating the detail and fighting for their pet initiatives instead of mouthing off to the media.
The Government must restate over and over its commitment to reducing the deficit by €4 billion and reiterate why. A real debate about savings will occur only when the public realises that this is an immovable bottom line and that the alternative is to lumber us with a much larger interest burden for much longer. Both the Labour leader, Eamon Gilmore, and the general secretary of the Irish Congress of Trade Unions, David Begg, this week simply side-stepped questioning about alternatives to cuts in public sector pay by suggesting slowing down the pace at which the deficit gap could be closed.
The Government also needs to correct the notion gaining support in some quarters that implementing the bulk of the McCarthy report can be avoided or delayed by instead taking “big ticket” steps like cutting public pay and social welfare. The reality is that pay and welfare must be cut in parallel to McCarthy implementation.
The ground for public sector pay cuts must be laid carefully. In order to counter the suggestion that the sector is being unfairly targeted, the Government will have to show not only that a substantial differential opened up between public and private sector pay rates during the boom years, but also that private sector earnings (including commission bonuses and overtime) have declined significantly in the last year while incomes in the public sector have not done so to the same degree, even allowing for the pensions levy.
The Government will also have to introduce substantial cuts in higher level pay rates in the public sector before seeking further cuts from the lower paid. In addition it will have to show that there has been a substantial fall in the cost of living. Most of all, it will have to reassure public sector workers that if they take this additional pain now they will not face further cuts next year or the year after.
Justifying proposed cuts in social welfare will be even more difficult. Again the Government needs to raise public understanding of how precisely our social welfare budget is spent. It will have to help the public distinguish between those social transfers that are genuinely of benefit to families most in need and those which, because they are universally provided or otherwise, go to less vulnerable and even wealthy households. They will also have to demonstrate that there has been real deflation in the cost of living for low-income households.
The Government cannot let the public debate about McCarthy and the budget take its own course while it works through the private budgetary process. Tempting as it may be to let others make the running in arguing why public sector pay cuts, welfare cuts and McCarthy recommendations are necessary, this would be unwise.
Meanwhile, lurking in the background are negotiations for a revised programme for government in which the Greens are seeking a new top tax rate, increases in education spending and commitment not to introduce third-level fees or student loans. Even if all or any of these were desirable policies, Fianna Fáil Ministers cannot possibly agree to them within the next week and thereby undermine the budgetary arithmetic even before the estimate deliberations have concluded.
The more one considers the scale of the budgetary challenge, the harder it becomes to square the maths and the politics of the next budget. Cool heads will be required.