Next week’s budget means more than the political fortunes of the present Government
THURSDAY’S AGREEMENT at the London G20 summit has painted an improving backdrop for what is set to be perhaps the most significant week in Irish politics for more than a decade. Not since another Holy Week in April 1998, when they faced into the final negotiations for the Belfast Agreement has so much been expected of our politicians.
Initiatives taken by the Obama administration two weeks ago and agreements reached at the G20 summit this week may mark a turning point in the global economic fortunes. The stock markets have rallied and the fact that the European Central Bank announced another reduction in interest rates has helped.
Now the stage is set for important decisions to be made here in Ireland.
As a country we have, slowly and reluctantly, had to come to accept the realities that flow from our changed economic circumstances. Even if we were not in the middle of a global economic crisis, the low tax, high welfare, big government model we have operated for the last seven years in this country would not have been sustainable, fuelled as it was by bloated tax receipts from an overheated construction and property sector.
If it were possible, the best thing which the Minister for Finance could announce in his speech next Tuesday, would be an immediate across the board 15 per cent reduction in public expectations. However, in the real world governments cannot control public expectations but can only attempt to manage them.
The international credit-rating agency Standards and Poor’s got itself into some hot water this week for seemingly encroaching into the Irish political sphere. In comments associated with their decision to downgrade Ireland’s credit rating, their sovereign debt analyst Frank Gill was reported to have suggested that new faces were needed in the Irish Government. In fact, listening back to his controversial interview on Newstalk, it is clear that he was making a more general point. He argued that the imposition of severe tax increases of the kind which Ireland now needs to introduce “typically” has required changes in government before there is sufficient public “buy-in”.
His point was that the precedent of sharp economic downturns in most other countries suggested that necessary changes in policy had not occurred unless there were “new faces” in government. He then, relying on a somewhat simplistic analysis of current Irish politics, suggested that because our next general election is not scheduled until 2012, a credible strategy for tackling the crucial deficit in our finances was unlikely to emerge until then.
However, there are two other scenarios, either of which is more likely to play out in Irish politics than that suggested by Standard and Poor’s. Firstly, the necessary public “buy-in” could come without an election. If the Government has the courage to take the necessary tough decisions this week and show more skill at communicating the need for these measures than it did last autumn, then there may be sufficient public acceptance to enable the necessary changes to happen without an election.
There was some good political news for the Government on that score in the 5 per cent rise in Fianna Fáil’s vote share in the Sunday Business Post’s Red C poll. Only time will tell whether this jump in support is actually the first green shoots of a political recovery.
The other scenario is that the general election could come a lot sooner than 2012. Some controversy attached itself to remarks I made a couple of weeks ago about the possibility of a general election happening in the aftermath of next week’s budget.
I felt then and still feel now that the scale of the tax increases and spending cuts required is such that the Government may yet struggle to maintain a Dáil majority. Alternatively, I have argued that the measures in the budget may be so severe as to provoke civil strife (by which I meant mass protests and general strikes and not riots in the streets), which would of itself create a political atmosphere so intense that this country would trip into an election.
This week has seen the Independent deputy Michael Lowry and even backbenchers like Jim McDaid laying down markers for what they want in the budget. However, there have been no suggestions – at least up to the point of writing – of any rifts having developed between Fianna Fáil and the Green Party during the budgetary process.
Simultaneously, there appears to have been an easing of wider public angst. Ictu’s decision to call off last Monday’s one-day stoppage is significant in that regard.
In his budget speech Brian Lenihan has to undertake a delicate balancing act between the need to address the gap between tax and expenditure sufficiently to convince the markets abroad, and consumers at home, that Ireland is serious about tackling its economic problems, while simultaneously avoiding measures so harsh as to further deflate the economy, exacerbate the fall in employment or become a tipping point for political turmoil.
Unless there is some proposal or proposals in the budget which provoke a particularly trenchant public response, the Government may manage to weather the political storm.
In his budget speech itself, or shortly thereafter, the Minister for Finance also has to lay out a detailed strategy for tackling the impaired debt which is still spooking the banking system.
If it’s to be as tough as it needs to be, Lenihan’s budget speech is unlikely to get much initial applause when he finishes on Tuesday. In the short-term – and even maybe in the longer-term – the Government are likely to get little thanks for their efforts.
However, what matters ultimately is whether it works. There are now more important things at stake than the political fortunes of the Government.