Taxing tales fail to take account of next century's pensions time bomb

A handy thing about the silly season is that it is a great time to float ideas that wouldn't normally gain huge amounts of media…

A handy thing about the silly season is that it is a great time to float ideas that wouldn't normally gain huge amounts of media coverage. These can vary from the sensible to the aspirational, those someone might actually implement to those no one would ever implement but keep the faithful happy.

An example of the latter came from SIPTU which decided to get all hot and bothered about tax cuts. Its stance was almost instantly derided by economists as liable to badly damage our economy. However, its statement did serve two purposes - a negotiating position was established and SIPTU members were appeased by this apparently strong action.

IBEC launched a more modest set of proposals aimed at making Dublin competitive. This newspaper reported that its scheme's most radical element was the direct election of the Lord Mayor by the people combined with some genuine executive powers being conferred on that office.

The rest of the document dealt with Dublin's more obvious problems - transport, housing, unemployment blackspots and suchlike.

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I mention these two items because what has started are the first of the pre-budget PR moves. While most of us are still in holiday mode, getting up late and enjoying the weather, the representative groups have started jostling for slices of the Budget pie.

Unfortunately, I suspect they may be wasting their time for two key reasons.

Right now our economy is being described as one of the strongest in Europe, but the word "strongest" is a misnomer. What it really means is that our economy is growing quickly, moving fast in the right direction. We are, as a nation, better off and the future looks bright. However, objects moving very quickly are not the most stable.

If you make a mistake at high speed the consequences tend to be severe - just ask Michael Schumacher.

Charlie McCreevy has the economy trundling along nicely and the most radical thing he is likely to do is steer it very gently in the right direction. Let me go back to our friends in SIPTU for a moment. I don't hugely disagree with its goals. Lower taxes are a good idea. I'm all for giving people the choice to spend their money as they will, rather than sucking nearly half of it out of their pay packets before they even see it and letting the Government decide where it goes.

The goal of a 25 per cent flat rate of income tax is admirable, but not at the expense of everything we have achieved. Taxes will come down, bands will shift, but not as radically as some might hope.

The second problem is our time bombs. Figures from the Central Statistics Office indicate that by 2031, we will have twice as many people over the age of 65 as we have now. Their pensions will have to be paid for. EU funding is going to drop substantially over the next 10 years to the point where we will become net contributors.

Our infrastructure isn't right yet and we will have to spend a fortune on solving our traffic problems. Partnership 2000 has almost run its course and will have to be replaced and, while attempts have been made to address the housing crisis, the measure most likely to make a significant difference is to be challenged over its constitutionality.

THE thing with defusing time bombs is that, if you get it right, it is desperately anti-climactic. Snip the correct wires and . . . nothing happens and, when people see nothing happen they assume nothing has happened. The sensible course of action is often not one that wins you votes.

Also, many of these time bombs are not going to go off for a number of years. There is a near-instinctive reaction among politicians to treat long-term problems warily. Usually the tactic is to pay a certain amount of lip service and perhaps put in place some relatively inexpensive measures that can be claimed to address them. Charlie McCreevy won't do that. To his great credit, he has already started to deal with pensions.

He has also exploited the silly season to float his plans to force companies to provide adequate pensions for employees. Not content with that, he has also hinted at tax incentives to encourage private individuals to get their own pensions in order. Even these measures, however, are unlikely to be enough. Pensions take a long time to grow large enough to allow someone to live on them. A large chunk of money is going to have to be put aside to deal with the demands on the Exchequer during the next 10 years.

The Minister for Finance is not the only one who is acting with a maturity the public might not expect from politicians. The Government has announced that it is to revise the Programme for Government over the next 10 days and will then start negotiations between the various departments. Out of these talks will come the December Budget, the National Development Plan and a strategy to replace Partnership 2000.

The most difficult task facing the Government is to defuse people's expectations of the next Budget. Unfortunately it has already taken a small step in the wrong direction on this. When announcing the revision of the Programme for Government, men tion was made of plans to build on the radical tax changes already under way.

That word "radical" may lead people into believing there will be a major shift in tax policy, but this is the summer, the sun is shining and few people will be too focused on December's Budget. There is plenty of time to dampen expectations.