The politics of pain

Finance Minister Brian Lenihan

Finance Minister Brian Lenihan

Some political commentators have adjudged last week’s budget was a success because it avoided on-street protests. The October budget got pensioners and students out with placards. The February public sector income levy resulted in a large Dublin march. Politicians say the public response to the latest budget has been silence. This should be even more scary to Government backbenchers.

Organised protest is just that – the result of pre-planned activity by ICTU, Students Union of Ireland, Age Action or the IFA. The private pain of middle income Ireland will be heard only in the ballot box on June 5. Over a full year ordinary working families will lose a month’s net pay as a result of extra taxes. The income levy has been the main instrument of revenue gathering. Between both budgets over €1.5bn is to be collected.

Because this budget came in the middle of an administrative tax year it wasn’t apparently possible to alter income tax provisions. The levy will apply on salaries greater than €15k a year and at rates up to 6 per cent. This is the most blunt, crude, indiscriminate method to raise taxes, because it treats income generically. No allowance is made for possibilities such as the payer having dependents or financial commitments.

Any hope that the victims of this budget might have reached a weary resigned acceptance has been dashed. This is because they have been promised much worse medicine in the future. Next December’s budget promises the taxation of child benefit, an extensive property tax and a carbon tax. As much pain again is forecast. There is now a growing realisation amongst tax payers that debates about public expenditure are no longer esoteric or academic. It’s about their hard-earned cash.

The disappointment of this budget is the Government’s unwillingness to face up to the core problem of the public finances. €46bn of current public expenditure and €7bn of capital spending this year is unsustainable. Apart from the axing of the double Christmas bonus payment to welfare recipients, no significant policy changes have been approved on Government costs.

This is a repeat of what happened in the 1980s. Higher taxes and a doubling of the national debt resulted in an almost insolvent paralysis. The FG/Labour administration got hammered in 1987 general election. The same fate awaits the present FF/Green government.

I welcome the decision to downsize the number of junior ministers and link the pay of our top public officials to European averages. The public sector early retirement scheme for those aged over 50 is desirable. The only hope for aggrieved voters in trying to eradicate waste and ensure value for money is An Bord Snip. While Government candidates for the Euro and local elections fear their fate, Dáil deputies hope the Government can cling on long enough for an uplift in 2012.

The key question relates to the timing of the next general election. I am convinced it will be some time between this autumn and June 2010. Politics cannot withstand economics. The pressures of tough decisions will force the Government to either obtain a fresh mandate or the Government itself could buckle from waves of unpopularity. The fallout of a really bad poll result in June could be indiscipline and disloyalty.

Minister Brian Lenihan has said that the cornerstone of his tough decisions was ‘fairness.’ The Government will learn that fairness is like beauty – it is in the eye of the beholder. Human instinct is predicated on self interest. The public perception that all of this budgetary angst is linked to a bailout of banks and developers is political suicide.

The gravest political error of this budget speech was the central inclusion of the National Asset Management Agency plan. The proposed banking and property bailout should have been dealt with separately, next week. This has been a strategic error in communication tactics. NAMA is the salt in the wound of the aggravated tax payer.

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