Ireland Calling by John Spain
Fianna Fail are holiday chickens
Posted on Thursday, December 23, 2010 at 08:45 AM
- "Greed is good", especially in Ireland it seems with pillars of society on the take
- Vintage pamphlets offer a glimpse at the rules of 50s-era Irish Catholicism
- A leap of faith by Ireland, the exit from the IMF/EU bailout
- A temporary detour from ecomic issues to Irish soccer madness
- Give Britain a break after decades of Irish emigration to the UK
With just a few days to go to the holiday, shoppers are out in force in Dublin and the bars are full with work parties raising a few glasses to our uncertain future.
There's an air of the Titanic about it, of course, given what we have been through this year and what we know lies ahead. But the attitude seems to be, hey, what the hell, we might as well enjoy this Christmas as much as we can.
We won't be spending as much this time, although the stores in Dublin city center were doing great business last weekend as people took advantage of a gap in the snowy weather to get their presents organized.
Most people are not completely broke yet, even if the country is. They still have enough to get the tree, buy presents for the kids, have a seasonal drink or two with friends, and bring home the big turkey for the traditional Christmas Day dinner.
The office party I was at last week was in a wine bar in the heart of the Irish Financial Services Center, the old Dublin Docklands area which was transformed during the Celtic Tiger years into our new financial district like Wall Street or the City in London. The wine bar is in the vaulted cellars beneath a vast refurbished old warehouse building beside the river Liffey. Our newspaper office party was in one of the interlinked cellars under the building that seem to go on forever, and were once used for storing goods brought into the docks on the ships.
As I walked through the cellars, each one a very large room, they were all full of people, a sophisticated crowd of young office workers, all dressed to the nines and quaffing glasses of interesting wines. The odd rebel was drinking a designer beer, but there wasn't a pint of the black stuff to be seen. There was a buzz of chat and laughter and there wasn't an empty seat anywhere, as I walked on and on from cellar to cellar in search of the newspaper party.
I mentioned this to a colleague when I eventually got there. Not much sign of a recession down here, I said. Maybe they all work for NAMA, was the droll reply. (NAMA, in case you've forgotten, is the new state body taking the bad loans from the banks.)
This is typical of most conversations here these days. We've got used to the shock of the economic collapse. Gallows humor has replaced the humiliation we felt after the International Monetary Fund (IMF) intervention.
In fact several people I talked to last week came out with the same line about the IMF -- it could be worse, the government could still be in charge.
One financial executive I was talking to even said it was a pity that Ajai Chopra, the head of the IMF mission to Dublin, could not stand in the upcoming election here.
Chopra would get lots of votes, he insisted, because people know he was the only one forcing through the changes that are necessary here. “Chopra for Taoiseach!” my friend said raising his glass, and he was only half joking.
Two of the changes that are absolutely essential here without delay are the introduction of a property tax and the radical downsizing of our state sector, and with it the vast number of people on the state payroll.
Apart from shrinking the big government departments, downsizing the state sector means getting rid of most of the quangos and other bodies on the state payroll which are costing us a fortune and don't produce much other than politically correct statements and reports.
An indication of just how pathetic the Irish government is can be seen in the lack of progress in these two areas in the recent budget. Instead of tackling these head on and making dramatic moves, the government made the enormous ****6 billion adjustment that was required in 2011 by squeezing all the ordinary taxpayers in the country for an extra 4% on average and by cutting spending on services.
In other words, they did what they always do. They failed to give the private sector, the generator of real wealth in the economy, any kind of boost.
And they avoided anything radical in the state sector, the part of the economy that sucks up resources and has been spending so much we are now in a mess. After all the tough talking, they chickened out and long-fingered the fundamental changes that are necessary.
Let's look at property. The Irish government has been talking for years about the need for an annual property tax to provide the state with a stable source of revenue.
Instead of that we had the so-called stamp duty which was payable on the transaction when a property was sold. This provided the state with enormous revenue during the boom. But when the property boom collapsed and sales dried up, so did the stamp duty revenue, and the state was left with a huge hole in its finances.
To avoid this in the future, the IMF has insisted that a basic annual property tax must be introduced here, like in most other countries. As I said, the Irish government had been talking about this for years, but never had the courage to do it.
Now, thanks to Mr. Chopra, it is going to happen. No one likes it, but almost everyone here recognizes that it is necessary.
So in the budget, the previous very high level of stamp duty (it was up to 9% on the sales of expensive houses) was cut to 1% on any house up to a million, and 2% on anything above that. Since very few houses are selling here these days, the revenue loss on stamp duty is small.
In its place, Finance Minister Brian Lenihan said, there will be an annual property tax. But not yet.
The details of how it will be done still have to be fully worked out. It will probably start with a flat tax on all houses, but not this year.
This kind of inept nonsense, given the extent of the problems we face, is truly scary. Almost every other European country has a property tax.
There are various ways a property tax could have been implemented here immediately, if the government ministers had the nerve to do it. But they don't.
Progress in the other big area where radical change is needed, down-sizing the state sector, was almost as bad in the budget. Instead of taking the ax to the huge number on the state payroll and severely cutting pay for those who are left, the so-called "draconian" budget did very little to upset those on the state payroll.
The reductions in staff numbers, pay and pensions are minimal. Looking at our state finances, they should have been drastic. But again, the government did not have the nerve to slash and burn where it was needed.
The issue of pensions in the state sector costing billions is a particularly sore one for workers in the private sector who have seen their pension pots decimated in recent years. Many private sector workers now face retirement on pensions that are half what they were expecting. Yet their taxes are being used to pay for generous, guaranteed pensions to state workers.
Instead of guaranteed pensions taken out of current tax revenue, pensions for state workers should be dependent on their savings and investments as workers in the private sector are. Yet apart from minimal changes, nothing was done about this in the budget.
Why? Because the government is afraid of angering state workers -- and their unions.
You don't have to be a political scientist to see what is going on. Fianna Fail knows it is going to be dumped out of government when the election comes in a few months, and that it is going to lose many of its seats in the Dail (Parliament). The question is how many.
This budget was as much about limiting the serious damage to Fianna Fail as it was about fixing the state finances. So although the government agreed with the EU/IMF that radical changes have to be made in property tax, the size of the state sector and many other sensitive areas like water charges, not much was delivered in this budget.
For all the talk of front-loading the €15 billion reduction in the budget deficit that has to be achieved over the next four years, the effects of the really sensitive policy changes will be back-loaded.
In other words, Fianna Fail is leaving it to the next government to actually start implementing the radical changes that it has agreed with the IMF are necessary.
It's Fianna Fail's little Christmas present to itself. And it's an IED for the incoming government.
Next year may well see the most radical shift in Irish politics since the early years of the state, something that we will be looking at here when we come back in two weeks.
In the meantime, from an Ireland caught in the big freeze both from the weather and the financial crisis, a Happy Christmas to you all.