OPINION:The transfer of €90bn in banks' toxic assets could prove calamitous for the public, writes VINCENT BROWNE
ON ALMOST every criterion one might devise this Budget is awful, but there is a landmine buried in it which could do terminal damage, one that was introduced almost by-the-way.
The landmine is the transfer of the €90 billion toxic assets from the banks to the public; that is €75,000 for every household in the State.
Brian Lenihan was right – this will do wonders for the banks. He said: “Assets will be transferred from the banks to the new National Asset Management Agency, with the purpose of ensuring that banks have a clean bill of health, their balance sheets strengthened, and uncertainty over bad debts is reduced.”
He acknowledged the transfer of these assets will result in a “very significant increase in gross national debt”. The debt will be repaid from funds raised through the realisation of these assets, whatever they turn out to be.
Manifestly, the banks will not be required to take the hit on these bad assets, for there would be no point in the exercise were that so. Even with the discount which Lenihan says will be applied to these assets on purchase by the State, quite clearly there will be a deficit – a hit – to be taken by the public.
This hit is likely to be of a scale of several billion, which could be truly calamitous.
In another throw-away comment, he said: “The Government also intends, in line with its previous indication, to put a State guarantee in place of the future issuance of debt securities, with a maturity of up to five years.” There’s no explanation of what this might involve, what risk there might be, and what the potential cost to the public is.
If all this were done in the context of nationalisation of the banks with the possible future intention of selling them off at a substantial profit, this might make sense. But this option is being avoided, except in extremis, as with Anglo Irish Bank.
So how is the public interest being protected here? And why, as a further option, are AIB, Bank of Ireland and the other financial institutions let take their chances and get whatever is coming to them, while the State uses its own bank, Anglo Irish Bank, to provide the credit and whatever is needed to protect essential financial services? It has already committed itself to sorting out Anglo Irish at whatever cost, so why not limit the exposure to just that, once the guarantee scheme expires in 18 months?
What interests are being protected, and why?
Aside from the banks, I would have thought the following objectives might have been applied to the Budget:
That it be seen to address the fiscal situation, thereby giving confidence to lenders, consumers and business people, as well as the people generally. I don’t think it has done that, for it has deferred most of the needed “adjustments” or “corrections” until 2010 and 2011. Decisions deferred.
That it does so in a way that is socially acceptable, for without there being a general sense that the Budget is right and fair, there will not be the social cohesion necessary to make it work. It failed here too because it needlessly targets the poor, and the political class will be seen to have got off very lightly (Why does Brian Cowen remain one of the highest paid heads of government in the world?). Why do people earning €15,000, the average income of half of all earners (according to the Revenue Commissioners’ figures for 2008), get drawn into the tax net by people (members of the Government) who earn, on average, 12 times more?
Why are people we all recognise as poor to be made poorer still, when the rich could be asked to pay a reasonable share of their income in tax, say 35 per cent? Even after this Budget, they will pay on average substantially less than that.
That it moves society towards equality. Yes, the Budget does go some small way towards greater equality, but it leaves untouched a massive structural inequality, whereby the richest (those earning over €100,000) will continue to get an income 12 times the average earnings of half of all earners.
That it invests in a range of community, social and business projects that protects and creates jobs. Everyone is agreed, even Ibec and Isme, that it fails on this score.
That the crisis be grasped in order to change the political system and make it more accountable, more democratic and more equal. The Budget has nothing at all on this. Meanwhile, the irrelevance of the Dáil is underlined by its being excluded from any part in devising the rescue package, or having any meaningful influence over it. No say, ever, over the reckless initiative on the toxic assets.
Some measures are welcome: the 6 per cent levy on the higher paid; the discontinuance of mortgage interest relief: the increase in capital gains tax and capital acquisitions tax. But there is so much that is shocking – most particularly the extension of the income levy to people earning as little as €15,000, and the reduction in the jobseeker’s and supplementary welfare allowance to €100 per week for claimants under 20 years.
Abandon hope. Almost.