Amid the clamour for cuts the €3bn given to the pension reserve black hole is baffling, writes FINTAN O'TOOLE.
IMAGINE YOU have a friend, let’s call her Cathleen Houlihan. She tells you she’s in terrible financial trouble, so bad that she can’t afford schoolbooks for her kids and is cutting out breakfast. She asks you to help her manage her money, and you notice that she’s still borrowing from the money lenders to maintain her gambling habit. Would you not advise her to stop wasting money at the bookies before she cuts out the essentials?
It may have escaped your notice – not least because it has escaped the notice of almost every media commentator on economics – that while we are discussing cuts to social welfare, education, community and voluntary groups and aid to the world’s poorest, we are still coming up with money for the bookies.
If this seems far-fetched, you ain’t heard nothing yet.
From the time the McCarthy group on public spending was established last autumn, there was one absolutely obvious candidate for the chop: the 1 per cent of GNP that we’re paying every year into the National Pension Reserve Fund (NPRF). This is a no-brainer. It’s not just that we’re putting about €1.7 billion annually into a black hole. It’s that we’re now borrowing that €1.7 billion at high interest rates. The analogy with going to the money lender to get the money to bet at the bookies is pretty exact. For anyone who is not so far gone in idiocy as to be actually wearing cap and bells, there really is no argument here.
Last year, the return on our investment in the NPRF was minus 30 per cent – almost a third of the money disappeared. The overall return on the billions we’ve put into the fund since it was established by law in 2000 is 0.6 per cent. We’d have done better if we’d simply put the money into a post office savings account.
If the McCarthy group was to have any credibility at all, it was always going to recommend that we stop throwing good money after bad, particularly since the NPRF is not counted as part of the General Government Balance, and therefore doesn’t affect our borrowing limits.
The McCarthy report duly obliges: “These payments were affordable when the budget was generally in balance but the Group considers they should be suspended as the State is in effect borrowing to finance the purchase of financial instruments.”
So, good news: stopping payments to the NPRF saves us around €3 billion this year and next – the full amount of savings required under the plan presented to, and approved by, the EU Commission.
While we should, of course, be looking for savings everywhere (all State spending should always be rigorously scrutinised, not least because every euro wasted is a euro not spent on meeting real social needs), this buys us time to take a rational look at the big picture of taxation and expenditure rather than engaging in hysterical attacks on the weakest.
There’s just one problem. Knowing that the McCarthy report was going to recommend that the NPRF payments be suspended, you would assume that the Department of Finance held off on handing over this year’s money. Astonishingly, it not only made this year’s payment early, it has also handed over most of next year’s as well. The department, presumably with the full approval of the Government, has deliberately sabotaged the most obvious and least contestable recommendation of the McCarthy report.
The National Treasury Management Agency’s report last week confirms the receipt of “€3 billion from a frontloading of the Exchequer contributions to the Fund for 2009 and 2010”. Knowing, at it must have done, that McCarthy (or anyone else with a stim of wit) would insist that we stop borrowing money to put into a fund that lost a third of its value last year, the Government decided to “frontload” the payments. It didn’t just borrow for this year’s trip to the bookies, but for next year’s as well.
The first thing to note here is the breathtaking hypocrisy. This is the Government that has been going around telling us that nothing can be ruled out, however painful it might be for the little people. Yet it has already silently pre-empted one of the key recommendations of the McCarthy group – one that, as it happens, does not hurt the little people. This turns the whole process into a charade.
We’re being codded up to the two eyes. The immediate €3 billion in savings we need for 2009 and 2010 is available in one very obvious and relatively painless move. The Government has deliberately chosen to pre-empt that option. Why? Ostensibly, the frontloaded €3 billion has gone into the banks. But this is a mere sleight-of-hand. The NPRF already has €20 billion – it didn’t need a top-up for the banks.
It may be that there is no logical answer – mere stupidity can never be ruled out. Assuming there is some kind of strategy at work, however, it can only be a deliberate attempt to panic the public into accepting attacks on the poorest and most vulnerable by pretending that there is no alternative.