W HEN AN incumbent taoiseach can't hand over power to a new taoiseach because he's not a member of the Dáil, you realise just how far we are from finding a new normal, writes SARAH CAREY
And while I’m hugely relieved that there’s a new energetic Government, I think we won’t know normal for many years.
Rather than a programme for government, one feels that a declaration by Enda Kenny and Eamon Gilmore would be more appropriate. “When our country has taken its place among the financially sovereign nations of the earth, then and only then let our epitaph be written.”
I wish them both well but I’m very afraid that fresh disasters await this Cabinet. The denial that characterised the previous government’s approach to the banking crisis may have infected every aspect of the administration.
Denial wasn’t just a psychological reaction to the shock of the crisis but a policy. At times I can understand it. The whole basis of capitalism is based on nothing more than confidence.
Without confidence our problems do get worse. It is possible to talk down an economy simply by scaring the bejaysus out of people. Sometimes, pretending everything is okay can keep the show on the road long enough for everything to be okay. And sometimes there is nothing for it but to face the worst.
The debate on the merits of crystalising losses has now extended from banking into two other areas – upward-only rent reviews for commercial property and rent allowance for private domestic accommodation.
The argument against banning upward-only rent reviews is that there would be a knock-on effect on the value of pension funds, many of which have invested in commercial property.
It would also exacerbate losses for developers and banks, thus deepening the crisis. I’ve been told some commercial property owners would rather a tenant left the building than accept a lower rent from them. This way, they can still claim a notional “book value” of the property.
These arguments are entirely based on the value of denial. It’s all about preserving two parallel universes. In one, businesses are crushed by large overheads despite being told that we must undergo an internal devaluation that requires wages and prices to be cut, but not key costs such as rates, insurance and rent. In another, pension funds must be supported by contracts that fail to reflect the market.
If someone could argue that in five or 10 years, commercial rents might recover to their 2005 levels, there might be a case for preventing a pension fund crisis now, over what might be a temporary glitch in the market – but this is not the glitch.
The glitch was 2005. Those inflated prices fatally distorted the rest of the economy. By disputing that reality, the pension fund industry is saying the distortion must be permanently maintained. This cannot make sense. Reality has to catch up.
Rent supplement for private rented domestic accommodation is in a similar loop. Rent supplement accounts for a significant portion of the social welfare budget – more than €500 million. It also accounts for a shocking portion of the entire private domestic rental market – more than 96,000 families are in receipt of the payment constituting over half of all domestic rents in the country.
Whatever rate the Government sets through this payment determines the rest of the market. If we’re supposed to be reducing costs of living so wage and social welfare cuts don’t render life unsustainable, then rents should come down too. The market demands it. When the market is dominated by the Government, the Government should demand it.
There have been reviews in recent years and last year the supplement was reduced in most areas, except Dublin, by about 10 per cent. According to the Department of Social Protection, the purpose of the review was to align rent limits to the most up-to-date market data available.
That’s laudable, but the Government could choose to align the payment with what it can afford rather than with the market. A 30 per cent cut would save more money and help drive internal devaluation.
That though would leave tens of thousands of landlords short in their mortgage repayments. When people’s incomes are being slashed, a 10 per cent reduction outside Dublin only makes rent supplement look more like a subsidy to landlords than a social welfare payment to tenants.
The Government could slash the payment but intensify the effects of the burst bubble. It could ban upward-only rents, but damage the pension funds.
These are the choices the Government faces. Each choice will have a cost, but not making choices has a cost too. I can see that denying reality makes things less worse in the short term, but I refuse to believe it can pay off in the long term.
We were told anger is not a policy and hope is not a policy. As long as denial is a policy, I can’t see us making progress.