ANALYSIS:Economist Colm McCarthy has proposed over €5 billion in cuts, but it is Minister for Finance Brian Lenihan who must respond. In executing them in whatever form, he will incur the wrath of vested interests, writes MARK HENNESSY.
BACK IN 1987, Ray MacSharry set up the first An Bord Snip to help him in his battle with bureaucracy in forcing through spending cuts. Colm McCarthy was part of that effort. Today, An Bord Snip Nua must persuade the public that billions must be shaved off exchequer spending.
Yesterday, Government Ministers noticeably made no attempt to take up “media space”, happy to let McCarthy be the one associated with its recommendations.
In time, however, the Government will have to decide to accept all or some of those recommendations when it comes to putting together the December budget, and its successive actions. If it does not accept this list of unpalatable options, then it will have to find its own list of unpalatable options. Either way, the next steps will be unpleasant for all.
The Government has to live in a political world, unlike McCarthy, who can return to the groves of academe in UCD when all of this is over. His group recommends that 5 per cent be cut off all social welfare payments, reflecting the drop in prices that has taken place in basic goods since last summer.
Such a move is toxic and could threaten the Government’s survival if implemented. Already, Independents Jackie Healy-Rae and Michael Lowry baulked at supporting the decision to scrap the “double” Christmas social welfare bonus. And it is not just Independents’ loyalty – if such a word is appropriate to use regarding them – that Taoiseach Brian Cowen will have to worry about.
Last year, the then-Fianna Fáil Wicklow TD Joe Behan quit the party’s ranks over the botched attempt to haul back medical cards from more comfortably-off over-70s – a decision that looks minor by comparison with some of the hard choices ahead.
Some of Cowen’s own deputies in poorer constituencies will now be conscious of the need for their own political survival, and that voting for such cuts will be unlikely to aid this.
While McCarthy was insistent yesterday that he was never given any upper target for cuts, some in the Government have quietly said that they had expected “a €3.5 billion menu, rather than a €5.3 billion menu”.
In his April budget, Minister for Finance Brian Lenihan said €4 billion worth of extra taxes, together with spending cuts, would have to be found in next year’s budget.
Back then, he predicted that €1.7 billion would have to come from new taxation, €1.5 billion from day-to-day spending cuts and €750 million from the capital budget.
Clearly, McCarthy has gone much further, even if he repeatedly emphasised that some of the cuts would take years to implement, and some of the ideas – such as cuts in the numbers of local authorities – are actions that should be taken because they are good ideas, rather than because of any short-term savings they might produce.
However, there is no doubt but that Lenihan is now minded to cut more from current spending next year than he thought necessary back in April, if only because his room for extra taxes is limited by the damage that this would do to spending among an already increasingly cautious population.
The danger for the Government is obvious: a recommendation by McCarthy is viewed as a decision by all those affected – and they will work relentlessly to ensure that it never comes to pass.
There are lots of decisions that have the potential to generate dozens of fire storms in every constituency for months to come, exhausting Government deputies in the process.
The closure of small, under-attended rural primary schools would save €25 million – and then only after four years – and would infuriate rural constituencies if implemented.
Judging by the attention earlier station closures have received, the recommendation that An Garda Síochána should close half of all of its remaining ones would be met with a similar response.
Noting that the Government has indicated that it will tax or means-test child benefit – now worth a hefty €166 per month for each of the first two children – the expert group seems to favour a 20 per cent straight cut in the rate. This would presumably be a less fair way of making cuts than if taxation or means-testing were to be implemented – even if means-testing would be an administrative nightmare.
Equally, the changes proposed in health will provoke fury, particularly those which will sharply reduce medical card entitlements, increase fees and cause significant job losses.
Public servants have already lined up against the Government over the introduction of the pension levy, still often not fully conscious of the job losses taking place among their neighbours in the private sector. Now they have further reason for hate, given the recommendations that allowances, shift payments, etc, should be cut or reformed.
In addition, McCarthy has clearly thrown a jaundiced eye upon his own trade, criticising the 31 days of uncertified sick-leave available to primary teachers each year, along with the lack of productivity of third-level colleagues.
Back in 1987, the first An Bord Snip report was never published, so it was never absolutely certain which recommendations had been followed and which ignored.
Today, the situation is different. Lenihan is clearly hoping that yesterday’s report will persuade the public of the gravity of the challenges ahead and bring them around to accepting what was previously unacceptable.
Equally, he is hoping that the more drastic of the recommendations – on social welfare, for instance – might give him room to make less swingeing but still financially significant cuts.
So far, the omens are not great. Trades unions and other vested interests have already begun to marshal their forces against Lenihan.
If he does not implement the majority of the report, he could be seen as a political wimp and create doubt internationally about the Government’s willingness and ability to deliver.
If Lenihan does implement it, he could bring down the Government.
Few politicians would envy him the choice.
Mark Hennessy is a political correspondent with The Irish Times