'We can work our way through in a calm, rational way'
INTERVIEW:Taoiseach believes if adjustments are made in four years, State will be in a stronger position, writes STEPHEN COLLINS
TAOISEACH BRIAN Cowen has moved to reassure the Irish public that the massive adjustment in the public finances over the next four years is feasible and can be done in a way that will leave the country in a much stronger position when it is over.
In an interview with The Irish Times, the Taoiseach insisted that the 2014 deadline for the adjustment could not be changed and he pointed out that €14.5 billion has been taken out of the economy in spending cuts and tax increases over the past two years.
Suggestions from the Economic and Social Research Institute (ESRI) and the general secretary of the Irish Congress of Trade Unions David Begg that the deadline for getting the deficit down to 3 per cent of gross national product (GDP) should be moved out to 2016 find no favour with the Taoiseach.
“Putting back the deadline is not a feasible option and ESRI say that themselves.
“We have to retain credibility with the markets and our commitments with the European Union.”
He says that the additional borrowing and the extra interest repayments that would be incurred by moving the deadline back to 2016 rule it out as an option.
“The basic problem is the gap between what we are spending and what is coming in,” says Cowen, who points to the four moves made since he took over as Taoiseach in the summer of 2008 to reduce that gap.
“The full-year cost of the adjustments we made in taxation and spending cuts was €14.5 billion,” he says, adding that it had been hoped with the return of growth another €7.5 billion adjustment over the next four years would have brought he deficit down to 3 per cent of GDP.
“What has changed during the course of this year is we have had the Greek default and the cost of sovereign debt increased considerably.
“And you also had a review of prospects for the American economy which were less optimistic. And you have seen downside risks in terms of the growth potential of the European economy as well and the world economy generally.
“Asia is doing well, but the US, Europe and other economies not so well. So that is what has changed.”
He says that the lower growth potential for the world economy particularly affects a small, open economy like ours.
Cowen points to the fact that the budget projection for 2010 was that the economy was likely to contract by 1.3 per cent this year, but in fact it was better than predicted with zero or very marginal growth.
“If you look at the September exchequer figures, our budgetary targets are broadly on line. Our export performance is good. Exports are up year on year by 7.5 per cent. So that is the good news in terms of where we are at now by comparison with where we thought we would be.
“The more difficult picture is the higher borrowing costs and the lower growth scenarios that are now being spoken about for the world economy, the European economy and the Irish economy.”
He says that the four-year plan is required now to show how the gap between what we are spending and what we are bringing in can be closed.
“For every €50 we are spending, only €31 or €32 is coming in. So that position has to be rationalised.”
When it comes to next year’s budget, Cowen says that the emphasis will be on spending cuts rather than tax increases, although a significant element of the adjustment will be on the tax side.
He says that while political decisions have yet to be made on the issue but economic data suggests that it is better to do more on the spending side than on taxation.
“I shouldn’t pre-empt a Cabinet decision. I don’t see this as a 50/50 situation. I think the expenditure will still be the greater share, but taxation will certainly be an important part of it. Growth is the third component that you need to make this work.”
The Taoiseach says that no decision has yet been made on the precise figure for the adjustment over the next four years and the scenarios ranging between €10 billion and €15 billion which were given to the Opposition finance spokespeople last Monday were for illustrative purposes only.
“It is true that when you are correcting the public finances that can have a dampening effect on your growth rate, but doing nothing is not an option because you do not have a sustainable growth position unless you do something about the public finances.
“So that is the conundrum that has to be resolved; the economic judgment that has to be made.”
He added that if the balance of payments went into surplus, it would be an important confidence boost for the economy.
“Ireland has a story to tell here. We have a challenging position, very challenging, but we can work our way through in a calm, intelligent and rational way by making the right judgements on the balance between making the adjustments in the economy and getting growth because you have got to keep an eye on both.”
Cowen believes that the Croke Park agreement provides the country with an opportunity of contributing to the adjustment by transforming work practices leading organisational change in the public service.
“The maximum possible is what is required from the Croke Park agreement at every level down to each hospital.”
He says that when budgets are announced, the service plans to work within those budgets will have to emerge.
“In the Croke Park agreement all these changes are there. The work practice changes, the redeployments. All of those are going to have to be maximised to the full so it is not going to be business as usual.”
He says that everyone in the country wants to avoid a situation where others ended up dictating our economic future.
“We have to sort it ourselves and we can sort it ourselves. We have faced into these situations before from weaker positions. We have a far more diversified economy now and we still have good investment coming into the country. Some of the top companies in the world are located here.”
The Taoiseach rejects the notion that a general election is required to give a Government a mandate to bring in a four-year plan and implement it.
“This has to be done urgently. It has to be done by mid-November, which is just three weeks away,” says Cowen, who insists that the Coalition has a mandate to govern until May 2012 and that that mandate is not diminished because he was appointed without a general election.
“My mandate as Taoiseach is the same as the mandate of any taoiseach of the country. John Bruton became taoiseach without an election and he was constitutionally the same as any other taoiseach.”
He points to national programmes like Towards 2016 and EU ones like the 2020 strategy, which go well beyond the term of one government.
“At the end of the day, people will have an opportunity to vote on the economic policies of parties when an election arises, but in the meantime there is a job to be done.
“The last thing we need, I would have thought, is an election campaign with parties who have totally different approaches.
“That would bring more confusion than clarity and then there is the prospect of having to find a politically viable outcome after an election as to who would form a government and all the negotiations that that would entail and all of the changed positions that would automatically arise. In the meantime we would have to be ready to go back into the market in January.”
Cowen said the writ for the Donegal byelection would be moved in the first quarter of next year, but he refused to commit himself to holding the Dublin South and Waterford byelections on the same day, saying they would be held in due course.
The Taoiseach believe that the effort to find a consensus was worthwhile.
“It showed a common determination by the main political parties, who all recognise that we have obligations we have to discharge. If we want credibility we have to show that we are prepared to honour our obligations as members of the euro currency.
“We have derived a lot of benefits as members of euro throughout this crisis which we have to take cognisance of as well. Apart from that it is in our own interests.”