(Mini) Budget Day, Brian Lenihan’s Second Bite at Tough Decisions

A few of us got an email from Brian Lenihan last night, having signed up to Fianna Fail’s alerts for research purposes. It was so awesome I left it to this morning to post.It does neatly summarise where we stand this morning, but not really in the way Lenihan intended.

Aside from waffly introductions some key paragraphs are highlighted below.

Tomorrow in the Dail, I will introduce a budget that proves Fianna Fáil is the right party to lead Ireland. Our budget will strike the difficult balance between higher taxes for those who can afford it and necessary spending cuts. Our strategy for recovery is based on everyone making a contribution.

…

The Opposition have put forward their proposals and some of them are constructive. But they avoid the difficult decisions that we all know have to be taken to get this economy back on track. Ours is a serious, balanced plan that will forge a pathway to renewal.

…

Enda Kenny says Fine Gael would get Ireland out of recession without raising taxes. Yet he proposes to both reduce the threshold and abolish the ceiling for PRSI – this has the same effect as a tax increase. He also calls for major cuts in public spending without specifying what should be cut. Difficult decisions are required; Fianna Fáil will not shirk them.

Labour opts to raise taxes and borrow more so that they don’t have to make difficult public spending choices. But their plan would not bridge the gap in the public finances.

The budget I will deliver tomorrow doesn’t shirk its responsibilities. It strikes a balance where everyone in Ireland contributes a share to getting the country back on track.

The rhetoric is flying thick and fast from government right now, it is all about ‘hard decisions’ which will see us through to 2013, an arbitrary point on the spectrum, just after a General Election, when the world will (fingers crossed) have picked up enough to take excess pressure of the final leg of financial correction.

The hard decisions reached a peak somewhere around the time Brendan Smith went ahead to promote a €6bn target for cuts. If they wanted to hit the 9.5% of GDP deficit target that would probably be the right amount to look for – meaning welfare cuts, price hikes, tax rises across the board, property and carbon taxes, less health spending, less education spending and just about less everything. As we hit 2004/2005 budgetary figures, we move back to 2004/2005 spending plans.

As the leaks got more consistent over the weekend, the government appeared to have been moved by opposition plans and lower estimates of savings of €3.5 bn from Fine Gael and €2.8bn from Labour. The lower end target of €3.5bn is to be hit with a levy increase and some spending cuts, mostly to capital. The pain, again going on wholly unreliable leaks, will be ‘flagged’ that great way of softening ground and announced in the December budget. Fortunately for Fianna Fail foot soldiers that comes after the local elections.

This is where it gets interesting. The first and second paragraph make huge play of the government taking the tough decisions – the pre-sping making it almost impossible not to report whatever they do as painful and difficult but all in all the right thing. The budget could well be no such thing. On past evidence it could just as easily be tough decisions to save under €500m in cuts to services and front line care – medical cards, vaccines, teacher cover etc. A dog’s dinner presented as ‘the best course for the country’ before the event would be a great help.

Of course the opposition “avoid taking the tough decisions”, they aren’t in power. Fine Gael want to cut public sector numbers and freeze incremements – a guaranteed strike inducing move if ever there was one and while I might disagree with the logic of laying people off to secure growth in the short term, it strikes me as a “tough decision”.

My favourite line “difficult decisions are required; Fianna Fáil will not shirk them”, stands in contrast to the following well placed leak in the Tribune on Sunday;

With the budget deficit certain to exceed 9.5% of GDP, the government will be open to accusations that it has not gone far enough in tackling the public finances. However, it will strongly argue that to have gone for more than €3.5bn in extra taxes and cuts risked doing huge damage to the economy. “We don’t want to kill the patient,” one source said.

As part of his efforts to reassure the international markets about the government’s seriousness in tackling the budget crisis, Lenihan will take the unprecedented step of laying out, in considerable detail, spending and revenue plans until 2013. This will involve flagging future moves such as the introduction of a property tax and the taxation or means testing of child benefit payments and outlining the amounts likely to be raised.

Tough decisions indeed. Delay, flag, outline, commission, report, expert etc. Heard it before from the master of tough decisions – Bertie Ahern.

I do think the politics of this budget matter more than ever – a local election wipeout removes the mandate for reform from the government by proxy. It says the trust between government and its coalition of tiger cubs, old age pensioners, very wealthy and lower income is broken. That makes it imperative to Lenihan to achieve three things:

1. Get the public finances in order through a combination of tax increases, spending cuts and 3-4 year budget plans to get the deficit back to 3% or less.
2. Provide a pathway to growth, a plan to get jobs, innovation, investment, creativity and infrastructure back into the economy while at the same time taking wealth out.
3. Bring the public along with him. Make sure that the message is not lost. What are they doing? To whom? Why? Cowen has not done it, even with the you tubery.

The final point is the achilles heel of the project. They are barely treading water on the first two but that becomes irrelevant is people continue to wonder what the hell is going on and why the governmetn return to the well of middle income earners for the bulk of the tax take.

The problem, to my mind, is the metrics for success are markedly different between the public and the political class. The public sees a budget as successful if it is strong on (2) while the political class focussed on (1) with a smattering of (2) if possible. That may well derive from commitments to the Euro and those given to the commission but it means that achieving success on (3) is made all the more difficult.

Since Lenihan and Cowen in particular seem incapable of engaging in a conversation with the country to get them onboard with their thinking, it will be uphill from here to whichever budget it is that finally sorts things out.

To watch the immediate fallout head over the the live blog. Posts will be up here later no doubt reflecting on the day that was.