INSIDE POLITICS:Social partnership caused the problem in our public finances and is not the solution, writes STEPHEN COLLINS
IN RECENT days, as union leaders made a show of flexing their muscles in advance of the Budget, it finally appeared to have dawned on the Government that so-called social partnership is the problem and not the solution to the crisis in our public finances that threatens to overwhelm the country.
Union leaders and business interests appear to inhabit a cloud cuckoo land where Government borrowing on a vast scale can continue indefinitely, with public servants keeping the salaries they got under benchmarking.
Incidentally, the generous salaries paid to most union leaders, like those paid to Government Ministers, are linked to Civil Service rates and are another sign of how far out of touch the benchmarking process was with the real world.
Leaving aside the fact that the EU will simply not allow us to continue unsustainable borrowing for very much longer, it is imperative for the sake of our own and future generations that the political system takes resolute action to put the public finances into some semblance of order sooner rather than later.
Economist Joe Durkan, a calm and sane voice on economic issues for decades, said during the week that he found it astounding that professors in Irish third-level institutions are paid around €150,000 a year, about twice what they would get in Britain.
The problem is that most pay rates right across the public service from the Taoiseach and top civil servants down to clerical officers are far out of line with international norms and, even if they were not, the country simply cannot afford to pay them any longer.
Social partnership landed us in this pickle, particularly through the phoney benchmarking exercise, and it is futile to expect a solution from that quarter.
The Fianna Fáil-Progressive Democratic government under Bertie Ahern abdicated responsibility for the public finances and taxation policy to the social partners, and it is probably unfair to blame the unions for taking full advantage of that weakness.
However, now that the chickens have come home to roost, only the political system can sort out the mess.
If the political class fails to deal adequately with its responsibilities, the country will start on a long-term slide back to the kind of poverty and gloom we thought had been left behind for good.
Speaking at the Kenmare economic conference last weekend, Durkan deduced from the new Fianna Fáil-Green Party Programme for Government that politicians have no stomach for pay cuts or, indeed, any cutbacks.
Having lived through three major financial crises in Ireland, he expressed the belief that “our capacity for doing things wrong is boundless”.
To be fair, Minister for Finance Brian Lenihan has consistently emphasised the need to deal with the problem now in order to avoid the pitfalls that made the 1980s recession longer and deeper than it need have been.
In a recent speech, he pointed out that this year the State will borrow some €22 billion to fill the gap between revenue and spending on public goods and services. The national debt has doubled to €76 billion over the past two years, and if no action is taken it will double again to €160 billion by 2013.
That would mean an annual interest bill of €10 billion, with two out of every three euro raised in income tax going to pay interest on the national debt.
Even the worst-case scenarios being painted for the Nama exercise don’t come remotely near the scale of the problem posed by the public finances.
In his paper to the Kenmare economic conference Colm McCarthy emphasised that the main lesson from the 1980s was that the fiscal adjustment required should not be delayed. He calculated that the Irish economy could have skipped five miserable years if that had happened in the late 1970s.
As two-thirds of all current spending goes on public service pay and welfare payments, the clear and blindingly obvious conclusion is that the overall bill for both items will have to be cut in the Budget. It is hard to see any way of avoiding cuts in pay and welfare payments in order to achieve that objective.
Of course, that will prompt both political opposition and industrial action, probably involving strikes in key public services.
The Government will just have to “screw its courage to the sticking point” and press ahead regardless.
A strong campaign of information before the Budget will be required, as well as some inspirational decisions to demonstrate a willingness to lead by example.
The strongest point in favour of Enda Kenny’s announcement that he would abolish the Seanad is that it would show the public that the political system is prepared to take its share of the pain of readjustment. In normal times a case could certainly be made for reforming the Seanad rather than abolishing it, but, given what the rest of the country will have to endure, it would show that politicians are putting their own self-interest aside.
It seems further pay cuts for the Taoiseach and his Ministers are definitely on the way, and not before time. Some symbolic gestures like the reform of the expensive and ludicrous State car perk for Ministers and former taoisigh would also do a lot to show that the politicians are serious about giving a lead.
Proposing the abolition of the Seanad is the easy part as far as Kenny is concerned, just as calling time on John O’Donoghue was for Eamon Gilmore.
The mettle of both leaders will be tested in how they react to the Government’s plans to save the public finances from collapse.
During the week Mr Kenny suggested in the Dáil that pay cuts should not affect middle and lower-income public servants, while Mr Gilmore has come out against cuts in pay or welfare rates.
Neither position is tenable, and both will have to show a bit more seriousness when the Budget is announced, assuming the Government doesn’t lose its nerve in the meantime.