Ministers must face up to some tough decisions

INSIDE POLITICS: There are worrying signs that some Ministers still don't understand the scale of the problem facing the country

DECISIONS TAKEN in the next few months will determine whether the Fine Gael-Labour Coalition succeeds or fails in the Taoiseach’s stated ambition to restore the country’s economic sovereignty by 2016.

There are worrying signs that some Ministers still don’t understand the scale of the problem facing the country and instead of embracing reform are resisting the fundamental changes required to get the country back to economic health.

Some Government TDs privately regret that they did not go for a much bigger belt-tightening exercise immediately after they assumed office in March of last year.

At that stage they would have been able to blame Fianna Fáil for everything and would have been farther along the road to recovery at this stage.

When Ministers gather in Government Buildings on Tuesday for the first Cabinet meeting after the summer break, Michael Noonan and Brendan Howlin will have to impress on them the need for serious engagement in devising the reforms and spending cuts that are required if the December budget is to meet its targets for 2013.

There is a lazy assumption among many Coalition TDs that the Government will inevitably run its full term until 2016 but if the budget targets start to slip and the troika programme goes off the rails things could spin out of control very quickly.

The European Commission, in its latest comments about the implementation of the bailout programme, warned that “despite the substantial progress made so far, the programme’s ultimate success remains subject to important risks”. Some of those risks, like the return to international economic growth, are outside the Government’s control but the commission expressed concern about the lack of progress to date on some of the things directly within the Government’s remit. It was critical of the continued failure to implement the kind of sweeping reforms in the welfare system which it believes are vital in the battle to tackle the unemployment crisis.

Changes in the welfare system in Germany in the late 1990s are widely recognised as having played an important part in the creation of the economic miracle that has made that country the dominant economic power in Europe in the early 21st century.

The reforms, introduced by the Socialist-Green coalition led by Gerhard Schröder, provided incentives to take up paid employment and broke the outdated notion that people should be entitled to welfare payments only if they didn’t work.

The system required a fundamental shift of perspective on the part of the public servants operating the welfare system as well as those who had become accustomed to living on welfare benefits. The reforms transformed the labour market and were widely copied in other EU countries.

Changes in the welfare system, to save the exchequer money and to incentivise work, form a fundamental part of the troika programme, but the indications are that Minister for Social Protection Joan Burton and her officials have yet to make a serious attempt to implement them. The department has produced an important document, Pathways to Work, which says all the right things – but the big policy decisions to underpin it have still not been taken.

The required measures will, of course, cause a huge political row and will be difficult for the Labour Party, but they cannot be postponed indefinitely without undermining the credibility of the Government.

There have also been problems in bringing about the required savings in health. The delay in getting to grips with the budget overruns in that department has made the political fallout worse than it need have been.

It appears that, on taking office, many senior Ministers didn’t really appreciate the scale of the economic crisis they faced. How they could have failed to comprehend it, given all that had happened in 2009 and 2010, is hard to believe, and is a commentary on the inadequacy of our political system.

Instead of confronting the harsh reality, the Coalition parties made a range of foolish commitments before, during and after the general election not to increase taxes or cut welfare rates. Those commitments have delayed rather than accelerated the necessary programme of reform.

Another foolish commitment was to treat the Croke Park agreement as holy writ. While it certainly has delivered industrial peace, the price has been to transfer the main burden of adjustment from the best-paid segment of the workforce to the less well paid and those with no jobs.

The president of the Union of Students in Ireland, John Logue, made a compelling case against further impositions on students and their families by pointing out that Irish academics are paid at least 30 per cent more than their colleagues in the UK for fewer teaching hours. About 80 per cent of the third-level education budget goes on salaries, but as these are protected under the Croke Park agreement, cuts can be made only in the remaining 20 per cent of the budget, which means that students will feel the pinch.

The Government has also mishandled some things that are well within its remit. The Personal Insolvency Bill has come under intense security from the troika, and rightly so. The commission has raised concerns about the fact that debtors can have €3 million of secured debt and an unspecified amount of unsecured debt written off under the legislation. “This cap appears to be very high considering the average size of secured household debt in Ireland,” it said.

While there is clearly a need to do something for householders in difficulty with their mortgages, it looks suspiciously like the legislation has been designed to cater for those who engaged in property speculation. Why the taxpayer, who now in effect owns the banks, should pick up the tab for the speculators is something the Coalition needs to answer.

Given the range of challenges ahead, the autumn will be a real test of the Coalition’s capacity to govern.