Hamstrung Coalition needs to be more imaginative

INSIDE POLITICS:The Coalition's strategy of tackling the gaping hole in the public finances through a myriad of small cuts rather than a handful of big ones is working at a crude book-keeping level but the political price it will pay for this approach could ultimately be very high.

At the outset the Fine Gael-Labour Government ruled out any increase in tax rates, any cuts in basic welfare rates and any cuts in public service pay. This triple lock has hamstrung budgetary policy and left Michael Noonan and Brendan Howlin with no option but to insist on an array of painful spending cuts and tax adjustments.

A handful of Labour Party TDs have expressed disquiet at some of the budget provisions and, while this is understandable, it is obscuring the fact that the party’s Ministers got a lot of what they wanted in the Cabinet negotiations and the budget is actually quite progressive in its impact.

If the dissent gets out of hand, though, it could be dangerous not only for Labour but for the stability of the Coalition. Some of the basic truths in politics don’t change over time and internal dissent quickly destroys a government’s credibility.

Back in the 1840s the British prime minister Lord Melbourne famously chided ministers about his government’s policy on the corn laws: “Now, is it to lower the price of bread or isn’t it? It does not much matter which we say but, mind, we must all say the same.”

Taoiseach Enda Kenny and Tánaiste Eamon Gilmore have certainly been saying the same about Budget 2013 and so has Minister for Social Protection Joan Burton. Some small adjustments may be possible but the danger is that unpicking one or two of the most unpopular measures could undermine the whole thing.

This is particularly the case with regard to the property tax. Persuading the public to co-operate will be difficult but, as the household charge saga showed, the big majority can be brought into the net with patience and discreet threats of ultimate retribution by the State.

The problem about the entire budgetary strategy, and it is one Labour TDs have to face up to, is that there is no alternative to annoying the public by a thousand cuts as long as the triple lock remains in place.

Another downside of those absolute commitments on tax, welfare and public pay is that they have preserved intact some of the key elements of the system that got the country into the mess.

At his post-budget press conference Michael Noonan made some interesting comments about why the Labour Party’s proposal for a 3 per cent increase in the universal social charge for those earning €100,000 had been rejected.

He said the Cabinet had taken the view that it would put Ireland at a competitive disadvantage, particularly in relation to our nearest neighbour, the UK, in attracting foreign direct investment.

This raises the question of why the Government has committed itself not to tackle some of the more glaring anomalies that put this country at a competitive disadvantage. At the beginning of the crisis the late Brian Lenihan promised benchmarking to compare public service pay with that in other EU countries but nothing has been heard of that since.

It would be instructive if the politicians started with a benchmarking exercise themselves and brought their salaries and conditions into line with some of our comparable EU neighbours. Despite all of the reductions in ministerial pay in recent years the Taoiseach is still better paid than the British prime minister and the same is true of senior levels in the public service.

To be fair to the Cabinet the budget decision to eliminate severance pay means each member is giving up the prospect of a very handsome financial package when he or she leaves office.

The excessive severance pay for ministers was just one of the ludicrous perks introduced by Fianna Fáil during the boom years. Another was the €40,000 leader’s allowance paid to each Independent TD. Noonan announced in the budget that in future it will be audited but there is no justification for it in the first place.

At a deeper level the budget did nothing to tackle the intergenerational inequity that is one of the most toxic legacies of the crash. The enormous pensions paid by State-owned banks, or directly out of State coffers, to a small number of senior bankers and public officials is a glaring manifestation of that problem.

Calls for a surtax on high pensions were resisted on the now familiar grounds that the people involved had a “legitimate expectation”. For all that, the budget rightly made it clear the State no longer has an interest in subsiding private sector pensions of more than €60,000, so why should it insist on continuing to pay public sector pensions of more than €60,000 on the same basis as before?

Back in 2009 the Financial Emergency Measures in the Public Interest Act overrode set salaries in the public sector and the contracted levels of payment to pharmacists and doctors.

A court challenge by one pharmacist to this “unjust” attack on his property rights was dismissed by Mr Justice McMahon in the High Court. “Given the exceptional threat to the economic wellbeing of the State and to the people I have no difficulty accepting that the 2009 Act is exceptional,” said the judge. He added that in the circumstances it was a clearly measured and proportionate piece of legislation.

To maintain public backing for continuing austerity the Coalition will need to be more imaginative in devising measured and proportionate ways of dealing with the continuing privileges of those responsible for the state we are in.