Who will be the MacSharry of this Government?

INSIDE POLITICS: Fudging of tough decisions in honeymoon period may have stored up serious trouble down the road for Coalition…

INSIDE POLITICS:Fudging of tough decisions in honeymoon period may have stored up serious trouble down the road for Coalition, writes STEPHEN COLLINS

ENDA KENNY and his Government have certainly lifted the morale of the country since taking office in March but may have stored up serious trouble by continuing to give the impression, fostered during the election campaign, that tough decisions can be avoided.

The celebration of the Coalition’s first 100 days came with an assurance from the Taoiseach that income tax would not go up under any circumstances and an assurance from Tánaiste Eamon Gilmore that welfare rates would not be cut.

Taken in tandem with the commitment not to impose further cuts in public service pay, the question arises as to how the yawning gap between tax revenue and Government spending is going to be closed.

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The commitments on tax, welfare and pay are not quite what they seem. Kenny’s pledge applies only to income tax and not to other taxes; Gilmore’s applies to welfare rates but not to the overall spend; while the public service pay commitment hinges on savings being delivered by the Croke Park deal.

Still, given the way the commitments have been hyped, the public is in for a shock when the budget is announced in December. The normal negative reaction to bad news will be compounded by charges of broken promises.

Whatever the content of the budget, it will have the stamp of the Coalition on it. Fine Gael and Labour will have to take full responsibility for whatever action is deemed necessary to adhere to the EU-IMF plan.

The Fine Gael commitment on tax and the Labour one on welfare may be part of the manoeuvring for position by the parties ahead of key decisions on the budget, but that is a dangerous game in current circumstances.

“I think the Coalition has made an awful blunder,” said one vastly experienced former public servant. “Instead of the feel-good first 100 days nonsense, they needed to introduce a swingeing mini-budget, with tax increases, welfare cuts and all the rest of it. They would have been able to blame it all on the incompetence of Fianna Fáil.”

Instead, the tactic of instigating a full spending review before arriving at budget decisions means Kenny and his Ministers will have put their own stamp on whatever cuts or new taxes are ultimately agreed. The time for blaming Fianna Fáil will have passed.

The Government has also piled up political pressure on itself by giving special interest groups of all kinds the time to mount determined campaigns to oppose potential cuts or lobby against new taxes like the planned household charge.

As against that, Kenny’s bright and confident approach has partially lifted the pall of gloom hanging over the country for the past couple of years. In itself that could play an important part in getting people to stop saving all their spare cash and start spending.

The figures for economic growth published on Thursday showed the export side of the economy is still thriving but the sluggishness of domestic demand is holding back economic growth. A modest resumption of growth is vital to enable the country to meet its debt reduction targets, so anything that encourages domestic demand is welcome.

It is all a very delicate balancing act and the Government clearly needs a two-pronged approach to restore confidence on one hand while not shirking the decisions required to get the public finances in order on the other.

This is precisely what happened in 1987. At that time, the then minister for finance Ray MacSharry showed the necessary resolve to face down his cabinet colleagues, including taoiseach Charles Haughey, and insist on implementing the recovery plan devised by his predecessor John Bruton.

The tactic worked because the cuts coincided with a resumption of economic growth. Imaginative schemes like the financial services centre helped to boost the economy at precisely the right time to capitalise on the improving fundamentals.

The question is who is going to be the MacSharry of this Government? To date Michael Noonan has shown a lot of political skill in Finance but whether he has the hard edge necessary to force his Cabinet colleagues to do what is necessary is open to question.

Brendan Howlin has hit the right note on public expenditure and reform but we won’t know until later in the year whether he has the resolve to follow through with action. The cuts announced for the high-paid end of the public service augur well for his ability to take decisions and drive them through.

Ruairí Quinn and Phil Hogan have been among the most impressive Ministers to date. Quinn has refused to rule anything out, including third-level fees, and gives the impression of a man who means business.

Hogan announced the introduction of the household charge from next year, as well as water metering, and stood by the commitments despite reservations expressed by Gilmore and fanned by the media.

His decision to get on with a property tax and confront the Irish obsession with having no taxes of any kind on property is welcome.

It is essential that Ministers do not get hung up on the commitments in the programme for government. One of the key findings of the independent body that reviewed the Department of Finance over the past decade was that the budgetary process had been “completely overwhelmed” by programmes for government and social partnership.

The programme for government may have been required to get Fine Gael and Labour into power but it would be fatal for it to become sacred writ. The only test for this Government is to restore the country to economic health in four years and neither political commitments nor social partnership should be allowed get in the way of that.