OPINION:We need unity of purpose on the long road to recovery and it is vital that the Government produces a recovery plan that is effective and coherent, writes TURLOUGH O'SULLIVAN.
UNEMPLOYMENT IS rising quickly to unprecedented levels. In January, the seasonally adjusted live register increased by 33,000, bringing the total to 326,000. This figure will increase substantially by the end of the year. Everyone knows the seriousness of the situation in the Irish economy. As companies in the private sector struggle to survive, tax income is falling dramatically. The Government has to react.
The actions taken to plug the hole in the public finances are just the start of a long series of painful measures to get the economy back on a sustainable path. As more companies close and more people join the dole queues, tax revenue will contract, while the need for social welfare payments will expand. Borrowing in the order of €20 billion could be required this year, given that tax revenues may fall below €35 billion.
We now need unity of purpose to restore confidence and put us on the long road to recovery. Delaying tough decisions or diluting necessary measures makes matters worse. Everyone must work together to find solutions to the crisis. It is deeply worrying that parts of the trade union movement have failed to grasp fully the seriousness of the situation.
To address this crisis we must realign our public and private sector pay rates with those in the countries we compete with. This is already happening in the private sector, but it is not a burden which can be borne by one sector alone. Public sector workers are not being unfairly singled out by the pension levy.
Some unions are painting a very false picture of the level of pain being endured across the economy. Thousands have lost their jobs, more will, share prices have been devastated and many pensioners and those near retirement have seen the value of life-long investments plummet.
Those who hold on to a secure income and pension are among the luckiest in our society, even if there are painful reductions in take-home pay.
Jobs are the best means of protecting living standards and we cannot allow the haemorrhage to continue. With survival the primary concern for the majority of companies and with the cost of living falling, the national wage agreement must be deferred indefinitely.
There is still scope for a way forward through social partnership. It is important that unions engage positively with the Government to explore if the public sector pension levy can be adjusted to ease the burden on the lower paid, without loss of revenue to the exchequer. But there will be no recovery unless public expenditure, including the public pay and pension bill, is cut
Following initial moves by the Government to address the crisis in the public finances and banks, the focus must turn to addressing the problems in the real economy and sustaining Ireland’s competitive enterprise base.
This is one of the reasons why it is vital that the Government produces – and adheres to – an effective, coherent recovery plan. Such a plan must ensure we remain open for foreign direct investment and provide a competitive platform for exporters.
An economic recovery plan can be fair and equitable, with all sections making a contribution. However, it will involve tough choices and unpalatable decisions.
Ireland must trade its way out of recession by selling goods and services abroad at a competitive price. Our cost base needs to be brought back into line with competitors in Europe, a task made more difficult by the devaluation of sterling in recent months.
Costs controlled by the Government must be reduced. The arrival of increased competition to the energy market has not delivered lower costs relative to our trading competitors, while other costs also need to be frozen or reduced, including local authority and waste charges.
Much more work is needed to put the public finances on a stable and sustainable footing. This will involve more moves to cut public spending this year and next. There is a need to broaden the tax base, but this should be done without increasing corporate rates or undermining the incentive to work. Many tax reliefs have been removed in recent years. This means our tax system has become more progressive. Those who can bear the burden most already do so – the top 20 per cent of earners pay 80 per cent of total income tax.
The burden of taxation on all, however, will inevitably rise, given the structural imbalance revealed by the collapse in property-related capital taxes. In the relatively short term, the near 40 per cent of earners who pay no tax will have to be brought into the tax net. The burden on higher earners will also rise.
Reform of public sector pensions cannot be postponed. It is not sustainable to pay pensions indexed to the job rate. The Government must relate pensions to final salary with indexation in line with the cost of living. New entrants to the public service should join a defined contribution scheme.
A robust safety net must be put in place for the most vulnerable in society. There is a need to support the delivery of front-line services in hospitals, schools and other essential public services, while leniency must also be shown by lending institutions on mortgage arrears. In light of the clear failures that have emerged, we also need a very serious review of financial regulation and corporate governance rules.
Citizens, unions, business and the Government must gear their efforts towards job creation and retention, and towards restoring our international reputation. It will take time to regain our position as a thriving economy at the heart of the European Union, but the building blocks must be put in place.