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. 

The same thing is going on at all levels among workers who are paid by the state. Tackling the state payroll was essential in this budget, but Lenihan ducked the challenge, afraid of the power of the unions and of more street protests. 

He ducked it even though there was clearly a groundswell of support for such action from private sector workers who are losing their jobs in the recession and see their pensions being decimated on the markets.  In contrast, state workers have job security, high pay and generous guaranteed pensions.  

In the cutbacks announced by the government in February, the state clawed some of this back by getting state workers to pay a bigger (but still very small) part of the cost of their pensions. This should have been taken further in this budget to reflect the true cost of state pensions, but Lenihan did not have the courage to do so.  

It was the same on welfare.  Some desirable changes were begun, like in the child benefit payments that are currently made to every family in the country regardless of income.  In future better off families will not get these payments.   

There were other changes as well, like the ending of the early childcare allowance paid to parents of pre-school children which made sense in the boom years when we needed more parents back at work, but no longer does.  

But the overall picture is that the main welfare payments will not be reduced, even though they are among the best in Europe (our payment to the unemployed is nearly double what it is in Britain, for example).   

And the system is riddled with absurd stuff like paying child welfare to parents (mostly East Europeans) who work here but whose children live back in Poland where the cost of living is about one-third what it is here, and Irish child welfare payments are enough to live on for a week.  

A recent intensive survey by the state discovered that in one area the level of welfare fraud was running at 12 percent, but the real figure is probably a lot higher.  All of this points to the necessity of making serious reductions in the cost of welfare payments of all kinds to the state, particularly since the cost of living here is now falling.