Collective effort necessary to address economic challenges

 

OPINION:The crisis in public finances requires action now – an understanding of what is required and support from all sectors will make recovery easier and quicker, writes Brian Lenihan

LAST WEEK, the Taoiseach met employers’ and trade unions’ representatives to discuss our response to the serious economic difficulties which now face this country. Further meetings are taking place with the farming and community and voluntary organisations this week.

The job losses announced last Thursday by Dell, the issues facing Waterford Crystal workers and the increase in the Live Register to almost 300,000 brings home to everyone the scale of these difficulties and their impact on the lives of everyone.

My department’s latest analysis suggests that Ireland’s national income will contract by 4.5 per cent in 2009. As the international environment gradually picks up, our loss in competitiveness will limit our ability to take full advantage, so a further small contraction in growth is likely in 2010.

As a result, any positives on the jobs front will be more than offset by job losses leading to a significant increase in unemployment. This means higher spending on Live Register payments, while tax receipts will fall again in 2009 to over €2 billion below 2005 levels.

Without corrective action now, the Government will have to borrow over €11 billion in 2009, or €5,500 for every worker in the country, just to fund current spending. In addition, we will have to borrow for all our capital investment under the National Development Plan. By 2013, borrowing for current purposes would reach €17 billion, if left unchecked.

The Government, led by the Taoiseach, has commenced urgent discussions with the social partners. The Framework for Economic Renewal, published by the Government in December, outlines the steps to address the severe short-term economic challenge, while focusing on how we can return to sustainable growth in the medium term.

In the framework, we said that the path to recovery required a range of measures:

securing the enterprise economy by addressing the challenge to the public finances and restoring competitiveness across the economy;

maximising the potential for growth by building on our strengths in innovation and research and development, as reflected, for example, in the IDA Ireland report published last week;

addressing the huge market for environmental and energy-related products, services and innovation;

investing in critical infrastructure, while favouring more employment-intensive activity in the short term and

driving our reform agenda for a more efficient and effective public service supported by smart regulation.

These remain critical to an overall economic recovery strategy. However, the scale of the problem in the public finances, which is now evident from the 2008 exchequer returns, means that absolute priority has to be given to restoring confidence in our public finances.

This is necessary not just to avoid an unsustainable burden of debt and the associated cost of servicing it, but to give investors and ordinary consumers confidence that the situation is being managed.

The scale of the crisis in the public finances requires action now. While a credible multi-annual framework will allow us to spread the adjustment over a period of years, the scale of the deficit demands a convincing start in 2009. Perceptions are important. To retain the confidence of the international markets, we need to set out a credible response at this point.

The scale of the adjustments required to accommodate what is in effect a significant reduction in living standards in the economy is a huge political, economic and social challenge.

That is why the Taoiseach has placed strong emphasis on the social partnership process. This is not in any sense to delegate the decision making to the social partners, or give a veto over what is properly the business of the Government. But we strongly believe that a broad understanding and support for what is required would make recovery easier and quicker.

If there is to be a measure of support for what will be very difficult decisions, I believe it will have to be based on a sense of fairness. We will need to demonstrate that all sectors of society are making a contribution to overcoming the crisis. That is the only way in which we can convince people to make the sacrifices that will be required.

The economy has lost competitiveness. Without the option of devaluation, and with the consumer price level expected to fall next year, unprecedented flexibility is required across the economy – in public and private sectors.

We will need to make decisions which, even a few months ago, seemed unthinkable. There will be implications for all aspects of policy, all areas of public spending, and all sectors of the economy.

We have reached a crossroads in the country’s development and I remain of the view that the best prospect of achieving what we all want for our country lies with a collective effort.

The Government is asking each of the social partners to provide their initial ideas for dealing with these challenges this week. This includes their views on how best to achieve the adjustments in public spending required in 2009 and future years.

Decisions will have to be taken towards the end of this month. Time is of the essence. There will be intensive discussions at official level this week to allow the Government to assess the available options at our meeting on January 21st.

Brian Lenihan is Minister for Finance