Focused by recession, both politics and public debate are confronting what the boom ignored, writes NOEL WHELAN
IN RECENT weeks there have been some shifts in the economic context around the forthcoming budget, but there has actually been an even more significant shift in the political context.
In fact, this year there is a real risk of premature budget fatigue. So extensive has been the discussion about the macroeconomic context and the various budgetary options that the public may begin to tire of the topic. Not since the early 1980s have the choices for a budget been so widely discussed in advance.
It is indeed a great pity that it has taken such a dramatic change in our economic circumstances to raise public levels of understanding of budgetary matters or to force such a detailed exploration of the merits or demerits of each line of Government expenditure. Much of the debate about public expenditure forced upon us in recent weeks was avoided during the boom years. Flush with the proceeds of the property boom, governments acceded to all demands and ignored the opportunity costs of everything.
Now we have no such luxury. At the height of the boom, our politicians outdid each other in their pandering to middle-class concerns – abolishing third-level fees and trebling childcare while simultaneously cutting taxes. In that environment, few dared to suggest, for example, that child benefit needed to be reformed or reduced. Now, while the argument around the retention of its universal provision is still intense, in recent weeks a real and relatively mature debate has commenced about child benefit.
On RTÉ’s Frontline last Monday night, Mary Hanafin floated the idea of three bands of child benefit, with the highest rate paid to those on social welfare or in receipt of family income supplement, while cuts would be targeted at households revealed by Revenue data to be the wealthiest.
Taxing or means-testing child benefit would be a better or fairer solution in the long term but, as a relatively fair and efficient means of achieving the savings required, Hanafin’s idea has some merit.
This week’s debate around childcare put the choices we face in stark relief. It left me, for one, perplexed about Fine Gael’s position. Fine Gael has in recent months accepted the need for tight management of the public finances and has agreed with the Government’s view that €4 billion in cuts are necessary this year. This week, however, Enda Kenny reiterated that Fine Gael is opposed to any change in child benefit. His stance lacks credibility because you cannot say that public expenditure cuts are required without accepting that the social welfare budget, which accounts for more than one-third of current public expenditure, cannot be cut. If you accept that social welfare must be cut, you can’t simultaneously adopt the stance that the rate of child benefit cannot be cut or tampered with for anyone.
The politics around the budget has eased in part because, with the Lisbon referendum passed, the programme for government successfully renegotiated and the Nama legislation finally enacted, the Cowen Government finally has some momentum.
Political difficulties around the budget have also eased because the Government has begun to communicate better about budgetary matters. Laying the groundwork for the budget day announcement has never been more important and has seldom been done so well.
The budget decision-making process at Cabinet level has greatly improved. The message from Government Ministers is now more coherent than it was at the end of the summer. The usual round of bilateral meetings between the Minister for Finance and each of his colleagues will be completed next week. They have been informed by the McCarthy report and, as a result, have been more rigorous than in previous years. Ministers are now also holding a special Cabinet meeting each Thursday afternoon, focusing exclusively on the budget. They are each contributing to discussion on overall spending plans rather than just on their department.
The communication is also improved at parliamentary party level where the scene has been set in a series of lengthy meetings at which key Ministers and indeed external economists have been invited to present on the macroeconomic environment, on the scope of public expenditure and on the workings of the social welfare system. Fianna Fáil TDs are being better-informed and therefore better-prepared for the difficult decisions to be announced in December.
The Government has also played better in the wider public debate than it did this time last year or even in advance of April’s special budget. A series of structured media occasions when the Minister for Finance can focus on the budgetary arithmetic are being rolled out. The most recent of these was the publication of the Government’s “no change basis” budgetary outlook on Thursday evening.
It also helps the Government that not a day passes without one report or other being published which shores up the Government’s argument about the need for cuts. Last week, it was an OECD report that reiterated the need for drastic action.
This week, the publication of the deflation figures was of assistance in the argument that cuts in some social welfare rates should be possible because the cost of living is falling.
In the Dáil, the Taoiseach has held to a strong line in recent outings at question time and has even managed to put the Opposition on the back foot by scheduling a special four-hour pre-budget debate next week. In this, he hopes to flush out Fine Gael and Labour on their specific proposals to close the gap in the public finances without cuts in public sector pay or in social welfare.
None of this will make the budget painless for the public, or even positive for the Government. But it will make the politics around it more manageable.