October 29th Lunchtime: The Recession Diaries

Sarah Carey suggests the Government listen to the Opposition. Agreed. As a rule, we should all listen to each other. Of course, Sarah employs a sleight-of-hand. When she says ‘opposition’, she specifically refers to ‘Richard Bruton’ and ‘Fine Gael’. I guess Labour doesn’t count. But there you are – already commentators are laying down tasks for the ‘opposition’ to replace the current Government. What they are really referring to is a Fine Gael-Labour coalition. And guess who’s going to lead that formation?

But let’s take up Sarah’s suggestion. What are Fine Gael proposing? What would their alternative look like? Fortunately, Fine Gael is quite open about what they would do differently – they published a pre-budget analysis and have been quite vocal in critiquing the Government’s budget. So let’s take a quick run-through.

First, there are things Fine Gael wouldn’t do. They wouldn’t have introduced the 1 percent levy and Air Travel Tax, nor would they have increased the standard rate of VAT by 0.5 percent. They opposed increases in DIRT, motor tax and capital gains. Further, they want personal tax credits to be increased. Fair enough. That’s €1.9 billion of revenue they would forgo.

Second, they opposed the cut in capital investment. That’s about €800 million to add back on.

Third, they have demanded extra expenditure: doubling of the support for debt-distressed home-owners, a doubling of the fuel allowance, extending the back to education allowance, numerous off-sets against employers’ PRSI, etc.

Fourth, they have opposed numerous cuts the Government has made: withdrawal of medical cards from the over-70s, education cuts, social welfare cuts, cuts in farm supports, etc. Further, they opposed the increases in college registration fees, hospital charges and medical expenses, etc. Hard to estimate the cost of all this but it does add up.

So we have a lot of money Fine Gael either wouldn’t have raised or cut – well over €3 billion. But here’s another stinger: they would have reduced borrowing. They have demanded the Government only borrow 5.5 percent of overall wealth, rather than the Government’s 6.5 percent. This would amount to a loss of €1.5 billion. So, in total we have an ‘opposition’ that would reduce the budgetary arithmetic by a staggering €5 billion. How would they make it up?

They do have some ideas: a carbon levy on electricity generators (under the misguided notion that the ESB sets its own tariffs) and a higher charge on banks arising from the guarantee. This could claw back about 16 percent of the money Fine Gael is demanding be cut from the current budget.

Their proposal to divert money from the Pension Reserve Fund into commercial infrastructural projects (e.g. the UK electricity inter-connector, Next Generation Broadband, Metro North and social housing) is good idea – and would allow for an increase in capital investment.

But Fine Gael itself admits all this isn’t near enough. So their bottom is: freeze current Government expenditure at the 2008 level. There are a couple of points about this – something that the media has missed and missed badly.

• Freezing voted expenditure would ‘save’ about €1.1 billion. In effect, this would mean further cuts over and above what the Government has enacted. Now put this against the backdrop of extra spending demands they have made, the current cutbacks they are opposing – and we are right to demand: where would the cuts come from.

• Here Fine Gael falls back on freezing public sector pay above €50,000. Sarah Carey specifically talks this up. The claim is that it would save €260 million a year, but it wouldn’t and Fine Gael knows that. The net figure, after tax, would be considerably less. So where is the rest going to come from?

Let’s be clear: the Government is in a total mess because they restricted current public expenditure growth (they didn’t actually cut it). What Fine Gael is demanding is further cuts. Were they in power, the current protests outside the Dail would be like a summer stroll through the meadows compared to what would happen when Fine Gael got through with the budget.

And after all that cutting and pain and sacrifice, there would be a huge hole in the budgetary arithmetic. Because the numbers don’t add up. At best, Fine Gael could only make up about half of what they are demanding. They would need to make further cuts of €2 to €3billion or raise that in taxes – a massive deflationary burden on society - and that would only get us back to where we are now.

So, let’s thank Sarah for her suggestion to listen to Fine Gael. Because now we know: Fine Gael is a cynical and opportunist party. They are engaging in the most populist opposition without a care of whether its’ good for the economy or not. Their programme would lengthen and deepen recession. Fine Gael should not be let anywhere near Government.

So now let's tun to the other opposition. Labour, are you ready to speak?

Comments

[simon]

Been meaning to go through Labours ideas But have not got to go through them properly. Basically tax breaks for property developing.

Which considering how much building is going on at the moment...

[Michael Taft]

That would be a useful exercise, Simon. All parties should put their agendas on the table. Though I was a bit harsh on Fine Gael, they at least published a comprehensvie pre-budget analysis / submission. I haven't found anything as comprehensive on the fiscal front from Labour. I await your investigation.