Budget must show wealthy elite are not untouchable

INSIDE POLITICS:The reaction to next Wednesday's budget will inevitably be dominated by howls of outrage from those who feel most affected by the measures. Just to make things even more difficult for the Government they will be amplified to maximum decibel level by the media.

Some of the complaints will be justified and some will be exaggerated out of all proportion, but whatever the scale of the rumpus, it should not blind people to the fact that the country is now very close to getting out of the hole it dug for itself in the Celtic Tiger years. If Michael Noonan meets his targets for 2013, then 85 per cent of the painful measures required since 2008 to save the State from bankruptcy will have been implemented. Getting to the finishing line will not be easy, but the end is now in sight as long as the Government keeps its nerve.

What is steadily coming into clearer focus is that the prophets of doom who attracted such enormous publicity throughout the crisis by urging suicidal options like debt default and exit from the euro have been proved wrong.

The current wrangling in the US courts over Argentina’s debt default in 2001 is proof, if any were needed, that defaulting on our debts would have put this country on the road to perdition.

Whatever its limitations, the Irish political system, with a little help from its friends in the troika, has managed to chart a way out of the terrible mess it got itself into. The pain is not over yet but by 2015 the State’s finances should be back on a sustainable basis.

The budget will contain a list of things that many will find unpalatable. A comprehensive property tax, higher income tax, more stringent conditions for social welfare payments and a cutback in the many entitlements available to pensioners will affect almost every person in the country.

Former taoiseach John Bruton, in an interesting blog during the week, attempted to give some context to the “austerity” policies that have seen Irish people suffer a fall in incomes through pay cuts and tax increases and a big reduction in the value of their assets.

He pointed out that while real gross national product is now back to the 2004 level, it is still 90 per cent higher than it was in 1997, and while consumer spending is back to its 2006 level, it is still 80 per cent higher than it was in 1997.

Adjusting ourselves to living on the level of income we had six or seven years ago is not easy, but even when the adjustment has been made we will still be among the wealthiest countries in the world with some of the highest paid public servants and relatively generous welfare payments.

Those who are now loudly demanding that we should get the same kind of writedown of our debts as Greece should compare our living standards, public service pay rates and welfare rates with those of our unfortunate EU partners on the other side of the continent. If things go well for Greece it will probably be where we are now in about 10 years’ time.

It should also be borne in mind that, whatever some interest groups and political activists try to maintain, the Irish State has managed better than any other in the EU to protect the most vulnerable sectors in society from the worst hardship during its huge fiscal correction, which has already amounted to €23 billion.

One thing this Government and its predecessor have failed to do is to come up with some symbolic measures to show the ordinary suffering citizen that those at the very top, particularly those with a direct hand in causing the crisis, are taking an equally severe hit.

True, our politicians, particularly the Taoiseach and his Ministers, have imposed substantial salary cuts on themselves, and senior public servants have also taken a bigger hit than the rest of the public service.

The problem is that these cuts have come in dribs and drabs and most members of the public are hardly aware of them. Some grand gesture is required to show that the Government understands the public hunger for some kind of catharsis.

One of the things that infuriates many people is the fact that a handful of top bankers who played such a large part in ruining the economy have been allowed to walk away with enormous pensions from what are mostly now State-owned institutions.

Legally it is not possible to single out any group of people for individual tax treatment but there is a strong mood on the Government benches in favour of a surtax on all pensions of more than €100,000 to catch the big fish who seem to have slipped the net.

Of course such pensioners already pay an effective income tax rate of over 50 per cent, but some kind of higher surtax is both justified and politically necessary if the budget is to get wide acceptance.

The Revenue Commissioners are always reluctant to introduce narrowly focused measures that may not bring in a lot of tax revenue, and Noonan may also be reluctant to go down that road for fear of a legal challenge.

Nonetheless, there is a political imperative to take action of some kind to demonstrate to the public that the wealthy elite in our society are not untouchable and will not be allowed to escape hardship when everybody else is suffering.