SIGNALS COMING from the Government would suggest it is preparing to expend some of the goodwill it has accumulated in recent weeks on tough, unpopular measures in the December budget. A €100 household charge will pave the way for property and water taxes and Minister for Finance Michael Noonan has insisted the terms of the EU-IMF bailout, which requires the budget deficit to be reduced to 8.6 per cent in 2012, will be met. That exercise will be neither easy nor painless.
The Croke Park agreement, with its promise of extensive restructuring, staff redeployment and savings, is expected to make a significant contribution to a rebalancing of the public finances in return for a Government undertaking of no forced redundancies or pay cuts. Now that the Dáil has risen for the summer holidays, Ministers will have time to review all programmes and spending within their departments with a view to increasing efficiencies and reducing waste. With public expenditure outstripping revenue by an estimated €18 billion this year, a difficult task lies ahead.
Savings of an estimated €1 billion in interest payments on EU-IMF bailout funds, along with the avoidance of a €1.1 billion investment in Bank of Ireland, have reduced future funding pressures on the Government. But they leave the current, harsh arithmetic unchanged. Up to €4 billion will have to be shaved off Government spending next year, with savings of a further €5 billion spread over the following two years. Those are the terms of a recovery programme that pose serious challenges.
Thankfully, there are some positive economic signs. For the first time in 12 years, Ireland is running a balance of payments surplus. Exports have been performing strongly and, while the domestic economy is still struggling, slow growth is expected to gain traction next year. With unemployment now exceeding 14 per cent, job creation programmes and a revival of the retail and service sectors are vital to any broad recovery.
Positive developments on the financial front can be a mixed blessing. While the Government promotes these events as domestic confidence-boosters, it remains shackled by the bailout terms. The upshot is that Fine Gael and Labour Ministers talk about forthcoming difficult decisions and hardship. It is an uncomfortable line to walk, particularly for concerned backbenchers. They have been assured that social welfare payments will not be cut or income taxes increased in the coming budget. Other taxes are certain, however, while inflation and higher interest charges will have their effect.
Shortly after taking office, the Taoiseach spoke of the need for a common purpose in confronting economic difficulties and he offered the prospect of living in the best small country in the world if all interest groups pulled together. Since then, Mr Kenny has displayed determination to change the way things have been done. The coming autumn with its promised referendums, Dáil reforms and legislative changes promises to be an exciting time. But preparing a fair and equitable budget remains the greatest challenge.