Deficit is unsustainable but cuts must be seen to be fair

 

INSIDE POLITICS:For the budget to be widely accepted, those responsible for the economic crisis must be held accountable

MINISTER FOR Finance Brian Lenihan will have to find some way in the budget of inflicting some pain on the really well-off in our society if he wants to attract wide public acceptance for his efforts to bring the public finances under control.

The anger of public servants at looming cuts in their salaries has been fuelled by a perception that developers and bankers, who created the bubble economy that destroyed the Celtic Tiger, are continuing to behave as if nothing has happened.

On paper it seems as if the country’s high-profile developers have lost everything. But most are still living in their luxury homes at the best addresses in the country, driving around in Mercs and SUVs .

Finding a way to extract money from such people will not be easy. But until the State is seen to call them to account in some fashion it will be difficult, if not impossible, to create the social solidarity required to sort out the public finances.

The Government itself failed at the start of this crisis to provide clear leadership and good example.

While Taoiseach Brian Cowen and his Ministers have taken a pay cut, and will take another in the budget, they have not made the kind of gestures required to give them moral authority to ask everybody else paid from the exchequer to make real sacrifices.

The reluctance of some judges and the heads of a range of quangos to take any pay cuts at all has only added to the sense of injustice felt by so many public servants at being asked to confront the reality that the country can no longer afford the salaries to which they have become accustomed.

Ministers will point out that they have taken a 10 per cent pay cut in their ministerial allowance of €125,000. They will also say they are paying the pension levy that applies across the public service on their TDs’ salary of just over €100,000.

However, that still leaves them with a gross salary of more than €200,000, which is pretty good by anybody’s standards.

What was required in the autumn of last year were gestures like cutting ministerial pay in half, removing costly perks like State cars and insisting that highly paid and well-pensioned State employees – from semi-State chiefs to judges – accepted real cuts.

Instead we have seen incremental reductions in the pay and benefits of politicians. But the public has barely noticed.

Of course the reality is that no matter what cuts Ministers take, or what punishment is or is not ultimately meted out to the reckless buccaneers who inflated the bubble, the public sector pay and pensions bill will have to be cut and so will the social welfare bill.

The figures speak for themselves. Before any budget adjustment the Government is committed to spending €58.1 billion next year, while its tax revenues are running at about €32 billion. The gap is made up by borrowing but that is simply unsustainable in the short term, never mind the long term.

The biggest item of Government expenditure is the €22.3 billion that goes on social welfare which accounts for 38 per cent of current expenditure. That is followed by €19.86 billion, or 34 per cent, on public sector pay and pensions, leaving €16 billion, or 28 per cent, for everything else.

It is instructive to compare ourselves to Britain, which is now borrowing on a scale similar to our own. Out of their current spend of about £540 billion (€595 billion) this year, a total of £203 billion (€223.5 billion) will go on welfare, £158 billion (€174 billion) will go on public service pay and pensions and £179 billion (€197 billion) will go on other items. The percentage share taken by welfare is remarkably similar to Ireland, but pay accounts for 5 per cent less of the total in the UK.

To get the Irish public sector pay bill down to the same proportion that applies in the UK would involve a cut of €3 billion next year. In fact the Government is planning a cut of €1.3 billion at most, which will only mark a step in the direction of what is needed.

Of equal importance to pay cuts in the public service are flexibility and changes in work practices which could reduce the overall cost and improve the services to the public. While many public servants work extremely hard others are left with little or nothing to do and cannot be redeployed to areas where they are needed. Many of the problems in the health service arise from restrictive practices which damage the quality of service provided to the public and inflate the cost of the system. The case at Limerick Regional Hospital two years ago when no porter was available to bring an emergency patient into an operating theatre was an illustration of a wider problem.

At the resumption of talks with Government officials on the issue during the week, trade union leader Peter McLoone clearly indicated that he recognised the need for action on the pay front in 2010 as well as the wider “transformational agenda”. He seemed to be responding to the emphasis Cowen had earlier placed on the need for a deal to cover the next 12 months.

It was a hopeful sign that despite the difficulties involved and the tensions that have arisen, the Government and the public sector unions may be able to come to terms on pay cuts for the year ahead. Both sides are clearly hoping that if a deal can be done for 2010, a pick-up in the economy could relieve pressure for further cuts the following year.

At this stage that appears to be a vain hope but even a short-term agreement on sustainable terms would be a valuable achievement.