BUDGET 2012 has all the hallmarks of a political fudge, relying on 1,000 painful little cuts to bring the public finances under control rather than making a bold attempt at reform, writes STEPHEN COLLINS
The defection of one Labour TD yesterday and the mutterings of others in the wings show how difficult it is for the party’s Ministers, but it also shows that they might as well have made some big decisions to save money rather than rely on a host of small cuts.
The budget, arrived at after an unprecedented level of kite-flying, was designed to be politically clever but has not succeeded in its basic objective of keeping all the Labour TDs on board.
More crucially for the long-term prospects of the Coalition, the avoidance of big decisions now may ultimately come back to haunt both parties in the years to come.
It is also questionable whether the strategy of splitting the budget in two did anything for the process, either in terms of getting agreement at Cabinet or getting broad public acceptance of the measures.
The comprehensive spending review on Monday turned out to be a damp squib, with a range of Ministers seemingly defying Brendan Howlin’s attempt to get them to reform their spending programmes from top to bottom.
The process appears to have degenerated into an old-fashioned estimates wrangle, with the big-spending departments doing everything to protect their budgets and avoid serious cuts. The leaks designed to test public opinion and soften up backbenchers created an impression of disarray which did nothing for the Coalition’s image.
The outcome of all the manoeuvring was a long list of small cuts, some of which look petty and mean in the greater scheme of things, while untargeted and expensive entitlements like child benefit continue to be paid to rich and poor alike.
The formal traditional budget package unveiled by Michael Noonan yesterday honoured the Coalition’s commitment not to increase income tax. Instead it relied on a range of consumption taxes and increases in areas like capital taxes to deliver the extra revenue required to keep the country running.
The increase in the threshold for the universal social charge may have taken a little pressure off low-paid workers, and the measures designed to promote jobs were welcome.
There was nothing particularly wrong with the overall package but, for all the criticism dished out to the previous government, it was not as brave as the late Brian Lenihan’s budget last year. The absence of boldness is likely to store up problems for both Government parties in coming years. While some of the politically difficult choices, such as a thorough reform of the child-benefit scheme, have been kicked down the road, they will inevitably come back on the agenda.
It is also inevitable that the €100 property charge will be increased in the years ahead, so it might have been as well to get the real pain over now and persuade people of the need for a comprehensive property tax if they want to keep income taxes from rising.
The problem with our tax system is that its base is too narrow, and Noonan rightly refrained from taking the easy option and increasing tax on income. He pointed out that consumption taxes did less damage to the prospect of creating jobs than rises in income tax, and he tried to spread the load.
Politically it is always better for a government to try to get the most pain over with in the first year or two – and well out of the way before it has to face the people again in the next election.
The worry is that the Government could be headed down the road of the 1980s Fine Gael-Labour coalition, which spread out difficult decisions across its lifetime and was roundly punished by a disillusioned electorate as a result.
One by-product of the lack of nerve in cutting back on expensive programmes such as child benefit and introducing a realistic property charge of €300 or €400 per house is that the Croke Park agreement protecting public service pay and pensions will almost inevitably come on to the agenda at some stage in the life of the Coalition.
Brian Hayes, Minister of State at the Department of Finance, acknowledged this yesterday, suggesting public service increments may come on to the agenda as early as next year.
Given that new Dublin West TD Patrick Nulty jumped so early on to join Tommy Broughan on the Opposition benches, the question is whether the Labour Party will be able to endure the strains over the long term.
When the resignation of Willie Penrose over the Mullingar barracks is added into the equation, three of the 37 TDs elected for the party have already lost the whip, and it seems only a matter of time before more join them.
Those departures indicate how difficult it is for the Labour Party Ministers to agree to the kind of swingeing cuts in public spending that are required to get the public finances in order, but that is the price of being in power.
Both Government parties are now paying the price for the populist stance they took in opposition. In their budget speeches a year ago Michael Noonan and Joan Burton denounced decisions similar, if not identical, to the ones they are presiding over now.
Allied to all the foolish promises of the general election campaign, it meant neither of the two Government parties was psychologically prepared for the kind of decisions they have been required to take.
To be fair, they have come up with a package of measures that should deliver the adjustment of €3.8 billion required to reach the targets set out in the troika programme. However, if there is any slippage in the growth projection of 3.8 per cent, meeting the targets could prove difficult.
The real political difficulty will be standing by the wide range of decisions across social welfare, health and education, where the pressure will come on all TDs, but Labour TDs in particular. The difficulties for the Coalition are only starting.
Stephen Collins is Political Editor