Tough budget is too weak

The size of the task facing Finance Minister Brian Lenihan this Tuesday was immense. The Irish economy is in real trouble, with tax revenue collapsing and state spending still up around the astronomical level it reached during our phony boom. 

The result is a yawning budget deficit that is getting worse by the day. Emergency action was needed to stop the country going bankrupt.  

Which is why Lenihan, the Irish minister for finance, introduced a supplementary budget on Tuesday to begin closing the gap between revenue and spending.    

But does his supplementary budget, already being described as "the toughest budget in the history of the state," go far enough?  Probably not, is the answer.  

It is timid rather than bold. It does the bare minimum necessary to keep the state afloat and to stop us being thrown out of the euro zone.  In relation to the size of the problem, it is a sticking band-aid rather than a cure for our disease. 

The size of the problem, as I said, is immense. This year the Irish government will spend around €65 billion.  The latest estimate is that it will take in around €34 billion in taxes.  The rest has to be borrowed, a level that is just not sustainable and is also way outside the rules of the European Union. 

To correct this situation the government has to cut spending and raise taxes.  It's that simple.  

But it's much easier to raise taxes than it is to cut spending, because cutting spending means chopping the huge payroll for state workers and trimming welfare payments, as well as cutting back on all the wasteful ways the government spends our tax money every year.  

And that is why I am saying that this emergency budget was timid, because Lenihan went for the easy option of raising taxes much more than he chopped back all the state spending this country can no longer afford. 

The state payroll and welfare payments together account for two-thirds of all government spending so cutting back in these areas has to be done, however painful.  

Already we have seen the reaction of people to welfare cutbacks, with angry street protests over attempts to charge those senior citizens who can afford to pay for health care. And we have seen state workers like school teachers out on street demonstrations, even though they earn one-third more than their colleagues in Britain.  

Next we will see protests by university teaching staff who earn double what their counterparts in Britain get, even though the international rating of Irish universities is very poor. 

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Nster.com