Public confidence in Coalition's austerity drive crucial


INSIDE POLITICS:THE MOOD at the parliamentary gatherings of the two Government parties during the week was upbeat and confident, but Fine Gael and Labour TDs were warned by their leaders to brace themselves for a bumpy ride ahead.

From the country’s point of view, the heartening thing about the parliamentary “think-ins” was the unity of purpose displayed by the two Coalition parties as they face into what could be the most difficult few months of this Government’s life.

Labour leader Eamon Gilmore was adamant on Monday that neither Labour nor Fine Gael would engage in one-upmanship during the lifetime of this Government. Taoiseach Enda Kenny echoed the sentiment at the Fine Gael gathering in Galway.

It is a far cry from earlier coalitions involving Labour and particularly those of the 1990s, when the relationship between Dick Spring and Albert Reynolds was marked by a deep suspicion on both sides that ultimately brought the coalition crashing down.

This time around the situation facing the country is far too serious for party political games, and in any case Kenny and Gilmore have a healthy relationship of trust built up during the long years of opposition. The fact that the Coalition’s political honeymoon has gone on and on has made it easier for the two parties to pull together.

Both sets of backbenchers were given pep talks designed to boost their morale for the tough times ahead, when the real test of the Government’s cohesion will emerge. If the Ministers and backbenchers from both parties can withstand the reaction of the public and the media to the austerity measures that will frame December’s budget, they can have realistic hopes of surviving in office for another four years in office.

One of the problems is that it is going to be hard, if not impossible, for Kenny and Gilmore to live up to the pledges they have made about not increasing tax rates or bands or not cutting welfare rates. Brendan Howlin’s comprehensive spending review is unlikely to prove the magic wand some of his colleagues hoped for at the beginning and there is no avoiding the twin imperatives of cutting spending and raising revenue.

The sale of State assets, to which the Government is committed in the EU-IMF bailout programme, would normally be expected to generate considerable friction between Fine Gael and Labour, but that does not appear to have happened, although final decisions are yet to be made. Ironically the easiest way for the Government to meet its fiscal targets would be to ratchet up income taxes rather than widen the tax base or cut spending. Many of those who are railing against the modest €100 property charge would probably make far less fuss if €1,000 a year was loaded on to their income tax bill and simply deducted at source.

The income tax option was taken during the 1980s and it prolonged the recession and stifled growth. An over-reliance on further increases in income tax to solve the deficit would be both bad for the economy and in breach of the terms of the EU-IMF bailout. The problem is spending cuts and a widening of the tax base are harder to sell to voters.

Whatever the formula adopted in the budget further pain is in store for large swathes of the electorate, but there is no way around it. The store of political capital built up by the Coalition since it took office in March should be enough to see it through the budget and out the other side.

The Fine Gael parliamentary party heard a relatively optimistic message from ESRI economist John FitzGerald, who expressed confidence that a continuation on the current course would see the country meet its targets and be free of the bailout on time. That assumes the international situation stabilises and the euro survives, but there is very little the Government can do about that.

In terms of international reputation Ireland is beginning to put clear water between itself and Greece, as a range of international bodies accepted during the week. There is no choice but to continue with the EU-IMF programme so that we can survive the backwash if and when Greece ultimately goes under.

One of the things that damaged the Fianna Fáil-Green government was the perception internationally in the summer of 2010 that it was slipping behind target as a result of the banking crisis. That precipitated the EU-IMF bailout in November. This Government appears to have learned the lesson and that means the budget adjustment will have to be at least €3.6 billion as promised and probably a bit more, just to be on the safe side.

The pessimists argue the euro is going to collapse and that will make it all irrelevant, but these are the same people, from far right and far left, who urged burning bondholders, collapsing the banking system and refusing to accept the terms of the bailout.

They are now arguing for “debt forgiveness” across the board, as if that was a feasible option. The public have a far shrewder appreciation of the complexity of the issue than most of the self-appointed experts. According to the recent Red C poll, only 12 per cent of people thought the State should forgive debt for everyone and the vast majority said it should only apply after thorough means testing and on ability to pay. In reality that is what is happening already.

So far the Government has brought the public with it by convincing people that it is acting in the national interest and that it knows what it is doing.

Maintaining that perception will be crucial in getting broad acceptance for the next set of austerity measures.