The Taoiseach acted to generate public confidence in his ability to handle the deteriorating financial position, writes STEPHEN COLLINS
THE IMPORTANT aspect of the package of measures announced by the Taoiseach and his Minister for Finance yesterday was that it should generate public confidence in their ability to handle the deteriorating financial position of the country. The details of what they had to announce were less important than the need to show they were in control.
The measures did amount to a broad ranging package, even if it was vague in places and represented just the first steps in the far more difficult task of formulating next year's budget and spending estimates.
At least the dangerous impression of drift that had begun to develop in recent weeks has been overcome and time bought to focus on the longer- term response.
The decision to abandon plans to implement the extravagant pay increases recommended for the Taoiseach and his Ministers was clearly the right one. The award from the independent review body was never justified and the Government would have forfeited all moral authority to demand sacrifices from others if it had accepted the pay increase. It was also right to scrap the second phase of the pay award to top civil servants, judges, semi-State chief executives and the higher ranks of the Garda Síochána. All of the people in these categories have secure, highly-paid jobs, plus enormous pension benefits and it is only right that they should also be expected to give a lead in these more straitened times.
In any case, all of these people, as well as the rest of the Civil Service, will benefit from the last phase of the national pay round this year. They got 2.5 per cent in March and another 2.5 per cent increase will be paid in two months. It will come to a hefty sum for all middle-ranking and senior public servants, TDs included.
With a 3 per cent cut in the public payroll bill a key element of the Government's plan for this year and next year, it was only right that those at the top should be first in line for a little "suffering".
Whether that 3 per cent reduction in the public pay bill, which will amount to €248 million next year, is an achievable objective is another matter.
Health and education, the two biggest State employers, are not included in the 3 per cent target as they involve frontline services, but that may limit the impact of the measure.
The State's pay bill will automatically rise by at least 4 per cent next year when normal increments and the full year impact of this year's two pay rises are taken into account, so finding a way of cutting it by 3 per cent will be extremely difficult.
The number of jobs in the public service will have to be cut to make the savings. The people who will suffer will be those who are not established public servants but working on a temporary or part-time basis, often on important schemes. Some established public servants may be phased out through redundancy schemes but it will be costly and difficult.
Labour Party leader, Eamon Gilmore, asked in the Dáil if the local authorities will increase charges to consumers as a way of making up for reduced budgets and if this is something that could clearly happen if funding from central Government is cut in the expectation of payroll deductions.
Health and education, the two big spending departments, are not included in the 3 per cent cut but separate savings will be negotiated for each department. Of course these departments may even provide more than the 3 per cent payroll cuts, given the vast numbers of people employed in the two services, but it would appear unlikely.
In total, it appears that it would take a cut of about 5,000 jobs from the 360,000 or so in the public service to start making the payroll cuts that are required. That may be an achievable target but it will take some time to establish if it is the case.
One less painful saving, at least for the public, identified by Brian Lenihan, is that all expenditure by departments and State agencies on consultancies, advertising and public relations will have to be reduced significantly this year and cut in half next year.
This has been the source of a gross waste of public money over the past decade as public relations consultants and their ilk insinuated themselves into Government departments and an array of State agencies.
The Minister is also right to look for savings from State agencies to see if some of them can be amalgamated or even abolished.
Fine Gael's Leo Varadkar has identified the proliferation of State agencies as something that needs to be taken in hand and a root and branch examination of the area is warranted.
The decision to put the decentralisation programme on ice and stop any further spending on the acquisition of accommodation is long overdue but far too much has been spent already.
The appointment of Minister of State Martin Mansergh to drive a programme of reform and to produce a business plan for purchasing savings to be achieved by departments and other public bodies in 2009 could yield significant results. Mansergh is one of the few people in politics who was in a senior position in 1987 when Fianna Fáil faced into dealing with the public finances in a determined and ruthless fashion and his experience should come in useful.
Savings in overseas development aid of €45 million were justified on the basis that the country will still exceed its projected target of 0.53 per cent of GNP this year because of the fact that GNP has stopped expanding. The revised total contribution in 2008 will still be over €900 million, which comes out at €200 per citizen and is one of the highest in the developed world.
The plan is supposed to deliver savings of €440 million in 2008 and €1,000 million in 2009. However, as Mr Lenihan pointed out even with these savings, the fiscal position next year will be demanding and all spending will have to be rigorously controlled.
Fine Gael's Richard Bruton insisted that the plan is weak and inconsistent and that ultimately it would be those depending on State services who would suffer. He certainly had a point in saying that the absence of any programme of public service reform was a central weakness of the plan as that is one of the fundamental issues that goes to the heart of Government.
Still, flawed or not, the Government now has a plan to work with and politically that should ease the pressure on Cowen and Lenihan in their new jobs. Of course, if it becomes clear later in the year that the plan is not working then they will have even more problems to deal with, but for the moment, they have bought some breathing space.
What nobody in the political world can anticipate is how serious the economic downturn is going to be. The continued collapse in the share price of Irish banks has potentially catastrophic dimensions for the entire economy and the Government may be called on to make critical decisions on which its whole strategy could stand or fall. Events outside of its control is something it can do little about but public expenditure is something that is its responsibility. A start in dealing with that issue has at least been made.
• Stephen Collins is Political Editor