RECOMMENDATIONS FROM the International Monetary Fund (IMF) on tax increases and spending cuts could not have come at a better time for Government Ministers as their parliamentary colleagues met to discuss the economy and job creation in the context of the December budget. Normally, Ministers have the tricky task of softening up the public by threatening extreme and politically unsustainable actions. This time, the IMF has done the job for them.
Minister for Finance Michael Noonan was the first to offer himself as protector of the Irish electorate when he rejected an IMF proposal to set a property tax rate of 0.5 per cent of market value because it was too high. Minister for Social Protection Joan Burton followed suit and dismissed IMF welfare reforms as a wish list – something the Government had not signed up to – and she emphasised the terms of the deal with the troika were what mattered.
It would be wrong to ignore the warnings coming from the IMF, even if the corrective actions it recommends are unacceptable. The job of Government is to decide what cuts will be made. The stark message from this important creditor is that Ireland’s debt may become unsustainable unless help is forthcoming from the European Stability Mechanism fund and the euro area crisis is rectified within a year. Even in a benign scenario, the IMF anticipates growth rates of less than 3 per cent until 2017, suggesting high, long-term unemployment.
There is something for everyone to complain about in the IMF document. A high rate of property tax; the extension of a carbon tax to all fuel types; redesigned vehicle and excise taxes and a broadening of the PRSI base. Consultants’ pay and drug costs are seen as excessive. The cost of pensions and medical cards for the over-70s is criticised as unsustainable. The minimum wage is under threat, along with cuts in unemployment and welfare payments. Reform of, and increases in, college fees and universal welfare payments is sought. And the public sector wage bill under the Croke Park agreement is regarded as too high. After all that, the IMF declares that a revival of domestic demand must be facilitated.
The authors of the document appear to have based their cost cutting/revenue raising proposals on a worsening scenario at national level, while hoping that remedial action taken at EU and international level will alleviate the situation. Oblique acknowledgment of those concerns came from Ms Burton who noted that, since the deal with the troika was struck, 40,000 additional people are unemployed and the cost of old-age pensions has risen by €200 million.
In spite of complaints about an IMF agenda designed to cut costs and living standards, end universal benefits and broaden the tax base, the fact remains that the coming budget will be extremely harsh. Savings of €2.25 billion will have to be found through reductions in health, education, social welfare and other areas. In that context, discussions on public service allowances and increments cannot be ruled out.