Easier for an unpopular government to go for broke

 

In presenting this tough Budget the Cabinet felt free of having to worry about its public image, writes NOEL WHELAN

IN ANYTHING approaching normal economic or political times it would be impossible to contemplate the measures implemented by the Government this week.

Cutting civil and public servants’ wages is the type of politically explosive move which would have blown a massive hole in Fianna Fáil’s traditional public sector support base, were that support not already so eroded.

Slashing welfare rates also offends a golden rule of politics by which Fianna Fáil lived until last Wednesday – that you can never take back entitlements people have become used to. It may be some comfort to the party to be able to say in years to come that they preserved the old-age pension at the worst time but, by cutting payments to other welfare recipients, they have crossed a political Rubicon.

Cutting child benefit was also a great No of Irish politics. Few politicians dared risk the wrath of Irish mothers by even suggesting slight rate reductions. A 10 per cent cut across the board would have been unthinkable.

In normal political times, nobody would have believed a government could cut the non-wage and non-welfare aspects of public expenditure by almost €1 billion.

Taking all these steps in a single budget would once have been in the realm of political fantasy land. Yet that is what the Government did this week. Coming at the end of a year in which income taxes were increased dramatically and a public sector pension levy was introduced, it is truly extraordinary.

In the aftermath of last April’s supplemental budget, the political and economic climb facing the Government in preparing this December’s budget looked too steep. The Minister for Finance indicated he would look for a further €4 billion in cuts.

It took time for general acceptance of the need for savings on that scale to emerge. The trade union movement argued and continues to argue that the Government was cutting too harshly, too soon. Ultimately, the main Opposition parties agreed that savings of €4 billion were needed to stabilise the deficit.

It would have been immediately apparent to Minister for Finance Brian Lenihan, his officials and economists that with about one-third of public expenditure going on wages and pensions, and another third on welfare, the necessary savings could only happen through significant cuts under both headings. The unions, the Opposition and, for a long time, many in Government, were in denial about this reality. Some argued that part of the shortfall could be met by tax increases. Others just hoped for magic.

The scale of the reverse suffered by Fianna Fáil and the Green Party in last June’s elections should have terrified Government politicians away from harsh measures. In fact, it appears to have had the opposite effect. Such was the extent of the Government’s unpopularity, they felt liberated from the need to worry about their short-term public image. When your support base has almost halved in two years, it is easier to go for broke.

The political groundwork for this week’s measures was laid carefully. Once June’s elections were over, the focus shifted to making the key economic argument that stabilising the deficit should be the priority, and that it needed to be done by reducing expenditure. The publication of the McCarthy report in July was significant. It laid out the macro-economic context in which decisions about spending had to be made and advanced the initial justifications for some of the proposals announced this week.

It floated, for example, the suggestion of a child benefit cut. It also shored up the case for public sector pay cuts by focusing on the pensions, entitlements and allowances available to many civil and public servants.

Political and public debate quickly began to appreciate, however, that all of the savings suggested by McCarthy were not deliverable in 2010, and that the best way to make substantial savings short-term was to cut basic rates of welfare and public pay.

For months the Taoiseach, Minister for Finance and other Ministers, and a chorus of economic commentators, reinforced these realities. The Taoiseach and his Ministers were careful to ensure the parliamentary party and others supporting the Government were kept in the loop. It is no mean achievement that this coherent economic argument was communicated while the Government was also dealing with the Lisbon referendum, renegotiation of the programme for government and the Nama legislation.

The Government’s political and communications strategies hit bumps along the way. For a few weeks in September there was considerable Cabinet incoherence about the extent to which the McCarthy report would be implemented, although that settled.

Events surrounding the collapse eight days ago of talks between the Government and trade unions were more significant. We may have to wait for the history books before a precise picture of what happened within Government and between Government and trade union negotiators emerges. It is clear that after a serious wobble, the Government pulled back from a deal with the unions on an unworkable 12 days’ unpaid leave plan. Notwithstanding days of protest, a one-day all-out public sector strike and the threat of worse to come, the Government stuck to its course and introduced the necessary pay cuts.

In time, the extent to which some in Government hoped a portion of the €4 billion required could be found by further income tax increases may also emerge.

History will record that the Government, Fianna Fáil in particular, were the primary authors of our current economic misfortune. It will now also reflect that in 2009 the Fianna Fáil-led Government took tough decisions aimed at turning the situation around.

For all the talk about his leadership style, our relatively novice Taoiseach deserves credit for carrying his Cabinet, his party and his Dáil majority through for these necessary draconian measures.

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