Ireland Calling by John Spain
Ireland financial system doesn’t know how to change
Posted on Wednesday, June 27, 2012 at 10:18 AM
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|Members and supporters of Sinn Fein protest outside the Merrion Hotel in Dublin where representatives of the EU/ECB/IMF were staying in April.|
You might think that because our state finances are bust and we are being propped up by the EU and the International Monetary Fund (IMF), a complete overhaul of all state spending in Ireland would have been completed by now.
You might think that, given that we will soon be two years on the lifeline of the bailout. But you would be wrong. The Irish state is still spending around one-third more than it raises in tax.
This is Ireland, folks. We don't like doing the math. We talk a lot, but we're not so keen on follow-up action.
Despite all the moaning about the so-called austerity program here, the fact is that the adjustments we have made so far are minor. We've made only a tentative start on rebalancing our spending and revenue -- just enough to keep the EU/ECB/IMF troika placated -- but real progress is painfully slow.
To be fair to the government, the problem has been made much more difficult because of the huge cost of the welfare bill caused by an unemployment rate that exceeds 14% -- we have 430,000 people out of work.
As well as that, there is the huge cost of the repayments we now have to make on our bailout money. That is also counted as part of the state spending we are supposed to be getting down.
So there is an excuse. But at the same time as this is happening, we also have a state workforce that is among the highest paid in Europe.
When our top civil servants go to the Europe to plead for a better deal for us, their counterparts on the other side of the table, even the Germans, are on much lower salaries.
And all our state workers have guaranteed life long pensions of at least half their salaries, something that has vanished in the private sector here and which the state cannot afford.
But the state continues to pay these pensions because it is afraid of what might happen if workers across the state services went on strike.
No one is against state workers getting pensions. But the level has to match the private sector.
And the horrible fact is that in the private sector, 80% of pension schemes are bust. Some will collapse altogether and be shut down, and many more will drastically cut the level of pensions they were supposed to pay out.
While this carnage is going on in the pension schemes of workers in the private sector, the state sector pension payments continue on at their generous levels as though nothing has changed, as though the Celtic
Tiger is still filling the coffers of the Revenue. In fact all state pensions are paid for out of current revenue, which now means bailout money.
The government should act to cut pensions to state workers by the same average margin that private sector pensions have fallen. But it is doing nothing.
The same failure to act is evident in almost everything the state touches here, like in the fees it pays to consultants, lawyers and so on. Little has changed.
And the effect of that seeps across the private sector as well, keeping the cost of living high for people in the private sector (the real economy) who have seen their pay go down as well as their pensions evaporate.
The IMF has already told the government that state sector pay and professional fees are way too high here, even if we were not a busted flush. In the context of a country on a bailout, they are simply ridiculous.
The IMF has also suggested that instead of reducing numbers of state workers to get down costs, we should cut pay instead and thereby protect levels of public service in hospitals, schools, local services and so on.
But the government seems incapable of real change. They are paralyzed with fear of what might happen if they upset the unions.
Instead they are sticking with the so-called Croke Park Agreement under which state workers agreed two years ago to a four year program which would make savings by increasing efficiency, thereby allowing some voluntary reductions in state staff numbers.
The overall effect was supposed to sharply reduce the huge cost of pay and pensions in the state services, a shift which is essential to allow us to close our enormous budget deficit.
In the last few weeks we have seen both government and unions slapping each other on the back about how they are "meeting all their targets under the Croke Park Agreement."
If you look at the most recent figures, however, the reality is that the overall cost of the state payroll (including pensions) in the past year has gone down by 0.4%.
Yet at the same time over the past year or two so many workers in the private sector have accepted savage pay cuts and reduced pensions in desperate attempts to keep the companies they work for solvent.
The situation is ridiculous. The government talks about reform, yet they don't want to upset the large section of the public (people on the state payroll and professionals of all kinds) which wants to keep things more or less as they are.
As I said, we're great at talking, not so good at doing.
There used to be huge resentment in the air here at the idea of the IMF and the EU experts coming in and telling us how to run things. Those days are gone.
These days you hear many people in the private sector expressing the hope that the IMF will lose patience with our dithering government and take over altogether. Or at least that they will exert their bailout leverage and push through the changes that need to be made in the unbalanced, unfair and wasteful way state money here is being spent.
The sad thing about the government's failure to act is that this is the perfect time for them to have a go, to take a few bold steps towards reducing and rebalancing state spending.
They have a large majority in the Dail (Parliament). They don't have to face a general election for another four years. The longer they leave it, the more difficult taking action will become as another election begins to appear on the horizon.
But don't hold your breath. It's a sad state of affairs when a mere 90 years after we got command of our own economy, we completely screwed it up.
We can moan all we like about the Brits and colonialism and 800 years of oppression, but we can hardly claim to have made a success of running things ourselves.
In particular, we don't seem to be able to produce politicians who are capable of offering real leadership and taking tough decisions. The present government is turning out to be almost as bad as the last.
Where are the IMF heavies when you need them!
At present the IMF experts come in for a few days once every three months to have a look at the books here and see if we are sticking to the headline figures in the bailout program.
They do have a small permanent presence in government departmental offices. But it's a monitoring function and it's not enough.
Since we are failing to make the necessary changes ourselves, the IMF heavy gang need to be in here much more often telling Taoiseach (Prime Minister) Enda Kenny and his ministers exactly what to do and where to make the cuts.
They're not capable of doing it by themselves. Sad, but true.