INSIDE POLITICS:Lenihan's big challenge is to come up with a package of measures that is politically and economically feasible, writes STEPHEN COLLINS
THE CURRENT political instability and the enormous scale of the looming budget adjustment have tended to obscure one very important fact: all of the major Dáil parties are committed to the same target for reducing the national debt by 2014. That is the silver lining around the very dark economic cloud that hangs over the country.
It certainly makes the current crisis more amenable to a solution than the last crisis of a similar nature in the early 1980s. Then, not only was there no consensus between government and opposition, there was not even a consensus between the coalition partners, Fine Gael and Labour.
When Garret FitzGerald and Dick Spring took office after the November election of 1982, a squabble immediately developed over the scale of the budget adjustment for the following year. Fine Gael minister for finance Alan Dukes announced his target, only to have it publicly contradicted by Dick Spring who, to complicate matters, was in hospital getting treatment for a serious back injury.
After much to-ing and fro-ing FitzGerald sided with Spring, the target for cutting the deficit was relaxed, and the recession was prolonged for a few years more than might have been necessary.
That coalition came to a premature end when the partners could not agree on the budget for 1987. Labour ministers staged a walk-out when John Bruton produced a hairshirt budget designed to solve the problem once and for all.
Ironically the Bruton budget, which brought the coalition’s life to an end, laid the foundations for Ireland’s economic recovery, while the politically acceptable 1983 budget that enabled the Fine Gael-Labour coalition to survive for four years actually damaged the prospects of a quick recovery.
Another important factor in the 1980s was that the Fianna Fáil opposition, led by Charles Haughey, ruthlessly opposed every measure designed to get the public finances in order; yet, once he achieved power in 1987, he reversed his stance and implemented the very policies he had opposed with such vehemence.
The heartening thing about today’s political configuration is that there is such broad agreement on the target of cutting the deficit to 3 per cent of gross domestic product over four years. It should mean that regardless of when the general election comes, or who forms the government in its aftermath, the path back to fiscal health is clear.
While the political parties will seek to gain advantage by differing on individual spending cuts or tax increases, they cannot resile from the target with any credibility. In any case they will incur the wrath of the European Commission and the money markets if they attempt to do so.
There is one serious difference of opinion between Fine Gael and Labour, and that relates to the proportion of the adjustment that should come from tax increases and spending cuts. Fine Gael is committed to an emphasis on cuts by a proportion of three to one, precisely the same as the Government, while Labour wants a 50:50 split between the two.
This will inevitably lead to some tensions between the two parties in negotiations on a programme for government and that is where the timing of the election will be crucial.
If the Government gets the budget through the Dáil on December 7th, the shape of next year’s tax and spending cuts will be settled and Fine Gael and Labour will be off the hook.
If the budget is defeated and the country is plunged into an early election there will be obvious potential for disagreements between Fine Gael and Labour during the campaign. The relative strengths of the two parties in a new government will have a big bearing on the proportion of cuts to tax increases that will apply. There is clear potential for conflict and stalemate, as happened in the 1980s, but the fact that they both agree on the ultimate target for 2014 should help them avoid that pitfall.
It will also help if Minister for Finance Brian Lenihan is right and the country is now at the half-way point of the adjustment to sustainable public finances. That would leave any new government two-thirds of the way down the road to the ultimate solution by the end of next year.
Lenihan is still wrestling with the four-year plan that will detail the key elements of next year’s budget and those of the following three years as well. His big challenge is to come up with a package of measures that is politically and economically feasible. The question mark is whether those two objectives are compatible.
Meetings of the Fianna Fáil parliamentary party have been dominated in recent weeks by TDs calling for all pensioners to be exempt from the cuts. This makes no sense on any front. Why should pensioners, no matter how well off, be excluded from cuts, while people on other forms of welfare payment or in receipt of child benefit suffer? Given that the vast majority of pensioners don’t have mortgages or family responsibilities and get a range of benefits from the State, it would be grossly unfair to exempt them from some contribution to saving the national economy when struggling families will be hit from every direction and young people forced to emigrate.
A chorus of special pleading from all sides can be expected when the plan is announced, but in the long run the public will be prepared to accept it if it is seen to be fair. Of course the best-off should pay most, but it will take a contribution from almost everybody in society to make the savings required to bring the public finances back into balance.
The departure from the Dáil this week of Jim McDaid and the High Court decision to force the Government into holding the Donegal South West byelection have probably made an election over the next few months inevitable.
If our major political parties stick to the pledges they have made about getting the deficit under control by 2014 they might be able to redeem the reputation of politics, which has suffered so grievously as a result of the disastrous decisions made by Government in the heady days of the boom.