ANALYSIS:People may not accept further financial pain if the Fás affair is not properly addressed, writes DOMINIC COYLE
PEOPLE ARE by nature optimists. The talk these days is more often centred on when we shall see a recovery rather than how much higher a price we need to pay for past economic excesses.
It’s not just in Ireland. Across Europe and the United States, each piece of economic data is scanned for signs of an impending recovery. Stock markets are racing ahead at levels not seen since the very early days of the Celtic Tiger and even unemployment numbers are proving less calamitous than had been feared – though that is of little comfort for the 130,000-plus who have joined the Live Register this year.
Into this determinedly upbeat mood, the exchequer returns for the third quarter of the year, released on Friday, struck a distinctly discordant note. It is now clear that the Government is going to undershoot significantly its dramatically reduced forecast for tax revenue in 2009. Income tax and VAT are running well behind their projected rates and, given the disproportionate influence on self-employed earnings of the construction sector, it is unlikely that any support for the exchequer forecasts will come from the filing of annual returns at the end of this month or in November.
The Department of Finance conceded on Friday that tax revenue will fall €2 billion short of revised estimates. For Minister for Finance Brian Lenihan, that makes the challenging budgetary arithmetic more difficult. To put it in context, the shortfall effectively erases the improvement the Government hoped to effect with the changes announced at the time of the emergency budget.
If the Government is to remain within the targets of the recovery plan agreed with the European Commission, it will now have to find this additional €2 billion next year. Already, the Minister has made clear that he is seeking to reduce net spending by €4 billion in the budget he will outline in December. He has also stated categorically that he sees little scope to increase taxation, meaning that the bulk of the savings have to come from spending cuts. With several Ministers already adopting the “Nimby” approach to cuts in an estimates process framed by the McCarthy report, finding the additional €2 billion in savings is likely to test the fortitude even of the mandarins in the Department of Finance.
And that is why the continuing crisis over Fás should be of such concern. Possibly the most serious element of the affair is the inability of Government to grasp quite how damaging it is, not just to their political future, but to their chances of persuading people to swallow the pain required to restore this economy to some measure of stability.
It’s a credibility thing. At a time when the Government is telling people in the public and private sectors of the need to reduce benefits and increase the tax burden, the constant drip feed of evidence in the Fás affair suggests that they are prepared to adopt an entirely different approach to those with sufficient power and influence.
Fás is also a microcosm of what has gone wrong in Ireland during the years of boom and “partnership”. Its board is weighed down with social partners – representatives of Government, business interests and senior trade unionists. Under its supervision, it has now been admitted, a culture of non-compliance thrived. The Comptroller and Auditor General has criticised what he called poor budgetary control and a failure to adhere to rules laid down on procurement.
Last week’s tawdry blame game over who precisely sanctioned the concession of a car to outgoing Fás director general Rody Molloy neatly illustrates the point. All the energy is being expended by each side ensuring that the buck does not eventually rest with it rather than in taking responsibility for whether the decision itself was right or wrong.
People cannot be expected to accept the necessity of some of the harsh choices that should lie ahead if the evidence from Government is of a failure to address smaller challenges – such as Fás – with any rigour. What our recovery needs is the willingness to make the hard and quite possibly unpopular decisions.
The passage of the Lisbon Treaty, albeit at the second time of asking, the grudging acceptance of the need for the National Asset Management Agency (Nama) and the pay cuts across the economy show that the public is prepared to make those difficult calls.
It remains to be seen whether the same is true of Government. The budgetary process now under way is going to bring further financial pain to many. Persuading them to accept that burden requires the Government to show its ability to make hard choices of its own on structural reform. It has to hand enough commissioned reports outlining the policy choices it needs to make if it is to deliver a healthier economy in the medium term.
