POLITICAL ANALYSIS:A package involving spending cuts, pay restraint and tax increases is inevitable, writes STEPHEN COLLINSPolitical Editor
THE DECISION to bring forward the announcement of the 2009 budget by nearly two months is an acknowledgement of the scale of the crisis in the public finances and is also designed to reassure the public that the Government is getting to grips with the problem.
Crumbling tax revenues and rising unemployment now present Brian Cowen and his colleagues with the toughest challenge any Government has faced in over two decades.
The crash in tax revenue during July and August has stunned a Government that only two months ago thought it had contained the problem with a modest package of spending cuts. With hindsight that response seriously underestimated the scale of a problem that has worsened far faster than anybody expected.
The last time a government presented the electorate with such a shocking picture was in July 1981 just weeks after a general election. John Bruton was then forced to present the country with an emergency budget to prevent the public finances spiralling out of control following the economic mismanagement of Charles Haughey.
There is an eerie familiarity about the headlines in The Irish Timeson July 22nd, 1981, the day after the Bruton budget. "Bruton imposes tough budget" was the main headline, with "Talks on pay pact in doubt" lower down the page.
Bruton increased the basic rate of VAT from 5 per cent to 15 per cent, introduced a 1 per cent levy on all incomes, hammered the "old reliables" like alcohol, cigarettes and petrol, and raised ESB and CIÉ charges significantly.
This time around, unlike 1981, the budget measures will not have immediate effect, but will come in as normal on January 1st.
Moving forward the budget is designed to show the public how serious the position is.
In 1981 the Fine Gael-Labour government could claim that the problem was all the fault of their predecessors. This time around the Fianna Fáil-led Government doesn't have any scapegoats and will have to take it on the chin from an Opposition that will proclaim "I told you so".
International factors may have triggered the current crisis but the construction bubble was an accident waiting to happen.
Brian Cowen as minister for finance did nothing to dampen it down over the past four years, and that is something for which he will have to take the brickbats.
A package of tough measures involving spending cuts, pay restraint and tax increases is almost inevitable. The Government will have to put up with the short-term unpopularity that its actions will provoke in the longer- term interest of the country. If the plan works its own unpopularity may prove transient in any case.
The reason the Fine Gael-Labour government of the 1980s ultimately became so unpopular was that it did not cut deeply enough, quickly enough, and it then resorted to tax increases as the way out of the problem. It tried to hold the line on public sector pay in the interests of the wider public and became deeply unpopular with a range of public servants.
By contrast, the Haughey government after 1987 adopted Fine Gael policies on spending cuts but implemented them in a much tougher fashion. Ray MacSharry not only adopted Bruton's 1987 budget plans but tightened the screws and cut even deeper.
He forced his cabinet colleagues and senior public servants to forget their petty efforts to protect their own spending programmes and conducted a full review of all spending. Brian Lenihan will need to take a leaf from the MacSharry book.
That 1987/89 government was underpinned by a Fine Gael opposition under Alan Dukes that supported a strict clampdown on public spending in the so-called "Tallaght Strategy".
Minister for Justice Dermot Ahern suggested yesterday that the current Opposition should act responsibly and offer his Government similar support now.
The same suggestion has been made in recent months by other Fianna Fáil figures but the chances of it being adopted are zero. For a start Fine Gael and Labour roundly criticised Mr Cowen's budgetary approach over the past four years but lost an election on the basis that Fianna Fáil was better able to deal with the economy.
To expect the Opposition to rally around now that Fianna Fáil is in trouble is not in the realm of practical politics. If Fianna Fáil Ministers were serious about getting Opposition support they could offer to form a national government and share power with Fine Gael and Labour. There is as little likelihood of that happening as of the Opposition supporting cuts.
The Taoiseach and his Ministers are going to have to learn how to govern well in a time of difficulty and not expect to be loved for it. It is what governments did in every decade of the State's history until 1997, when Bertie Ahern took over an already booming economy, and it is what the business of politics is really about.
The Government in its statement yesterday said it was also going to announce measures designed to encourage economic activity and boost confidence in the economy. These announcements will be made in the coming weeks before and after the budget.
While initiatives to generate economic activity and boost confidence are welcome there is a danger that the Government might respond to the intense pressure from the construction industry for a bail-out by the exchequer. This would not only be deeply unfair to the ordinary taxpayer but would also be counter- productive in the long run and postpone the start of a real economic recovery.
Mr Lenihan said yesterday that taking decisive action now was critical to our sustainable growth. He is absolutely right, but he will need a combination of political courage and skill as well as a dollop of luck to bring the country through the challenges ahead.