SOMETHING HAS to give in relation to promises made by Fine Gael and the Labour Party in their joint programme for government. Commitments made to public servants under the Croke Park agreement, to voters on taxation and social welfare and to the troika on fiscal retrenchment were based on economic growth rates that have not materialised. Because of the resulting revenue shortfall, unpalatable Cabinet decisions lie ahead.
How Ministers respond to these unforeseen difficulties is likely to influence the long-term stability of the Government and its perception in the eyes of the electorate. A resumption of the scaremongering that marked preparations for last December’s budget was firmly discouraged by Taoiseach Enda Kenny during the week when he advised Ministers – following a grumpy complaint by Tanaiste Eamon Gilmore – to do their talking in Cabinet.
Clear divisions exist between the parties on where savings might be made: whether through the Croke Park agreement by way of public sector cuts or by way of tax or social welfare changes. But final decisions will not be required for about five months and, as Fianna Fáil’s Micheál Martin has pointed out, speculation over potential reductions in income can only have a negative impact on the public’s willingness to spend.
Both Mr Kenny and Mr Gilmore have insisted the Government is committed to honouring the terms of the programme for government. Such an undertaking will offer comfort to interest groups, but it may be unrealistic. The Government has obvious priorities. Meeting the terms of the EU–IMF bailout will take precedence. After that, it will be a question of where savings can be found or extra revenues raised.
Labour Party Ministers engaged in something of a pre-emptive strike by suggesting an increase in taxation could not be ruled out. Fine Gael Ministers responded by pointing to social welfare entitlements and public service pay and conditions as alternative sources of revenue. Such a public airing of party positions reflects the pressure Ministers are under. But it does nothing for public confidence in their ability to agree on what Mr Kenny suggested will be a difficult but fair budget.
Closing the gap between revenue and spending was predicated on strong economic activity and higher revenues. That hope has faded as the EU lurches towards recession and the currency crisis remains. The outlook may change, depending on decisions by EU leaders to boost economic growth or to share losses by the banking system between creditors and debtors. In the meantime, Ministers have some months to tease out their budgetary options. When decisions are finally taken, however, traditional secrecy should not apply. A new, transparent approach to budget-making is required, arising from the referendum on EU fiscal discipline. The Dáil and directly affected groups should be advised. A repeat of last year’s performance, when members of the German parliament learned of budgetary decisions in advance of the Irish electorate should not recur.