Putting Humpty back together again

The final sticking plaster to put Humpty Dumpty Ireland together again is the Commission on Taxation report, due for presentation to the Minister for Finance at the end of the month. It’s the flip side of the coin to last week’s An Bord Snip Nua, or McCarthy Report, which sets out the agenda for fixing the public finances through expenditure cuts. Highlights of the Commission’s reports are expected to include proposals for a property tax, a climate change/carbon tax and methods for taxing the existing universally paid child benefit.

Fixing the banks by removing their toxic assets as well as their performing property loans is the purpose of NAMA, in the process establishing the biggest state property company in the world. (As an aside, an optimistic column in this week’s Sunday Times suggests an unintended consequence may be to finally bring some common sense into our planning system as NAMA will herald an end to the days, never to be allowed to return again, of local authorities tacking ridiculous planning schemes for see-through shopping centres, malls and apartment blocks onto the outskirts of towns and villages throughout the country simply to swell their coffers with developers’ fees.)

Then there’s the murky, messy issue of restoring competitiveness to the Irish economy, to ensure our readiness to participate in a global upsurge in demand when the great recession comes to an end, whenever that may be. Competitiveness is linked into the other three in one way or another, as well as to pay cuts throughout the public and private sectors, cost of living, cost of government services, energy costs and just about everything else you can think of.

The McCarthy Report is like one of those awful TV programmes like ‘How Clean is Your House?’, where the team wades in and tears out decades of clutter and rubbish of which the immediate residents have grown rather fond, even if it long since ceased to serve any useful purpose and is, in fact, injurious to their long term health and happiness.

Out go long-cherished principles of universality in healthcare and social welfare provision and education and in the conditions and perks that public servants from politicians to barristers to teachers to gardai, and just about every other agent of the state, thought of as their just and rightful entitlements. From farmers to gaelgeoirs to artists, the message is: you can sink or swim, but there is no State-sponsored financial safety net to keep you afloat any longer.

It’s revolutionary, but it’s not coming about by choice. Colm McCarthy was at pains to stress the point in various interviews since his report came out that the State is borrowing €400m a week to pay for wages and public services and social welfare. That the debt market from which this money is being borrowed is not the debt market of the 1980s when Ireland and couple of other countries were the only countries drawing on it. That it is already overstretched by the demands of the bigger countries like the US and the UK that sooner rather than later it will turn off the tap on small countries like ours, particularly if we are seen to be doing nothing to reduce our borrowing requirement. The day arrives when there is no money to pay civil servants salaries, or teachers’ and doctors’ pay or social welfare payments to the unemployed; no money at all, not even for ministerial pensions and TDs’ expenses.

His second major point is historical: in the 1980s we tried to tax our way out of recession; and only succeeded in keeping the pain going right throughout the decade. Therefore, logic suggests that we make a huge and painful adjustment on board now; since it will be less painful in the long run.

The third point which he didn’t make, but was made elsewhere, is that much of the money that was expended on creating so many state services, indulging the vanity projects of individual ministers and departments and accelerating increases in social welfare payments and pensions and state supports, ahead of inflation, were bankrolled out of receipts of property taxes and stamp duty, and in the case of local authorities, developers’ fees and the like. We may not have known it at the time, but that too was ‘borrowed’ money. Those particular chickens have come home to roost on the rickety fences of our fiscal imbalance as well as the crumbled edifice of our banking system.

It’s a bitter pill to swallow. The fact is this was never ‘a rich little country’ as so many of our political class universally claimed as they sloshed money around or demanded even more expenditure to cure every social ill that came to light. Worse, nobody cares a stuff what happens to us; we’re entirely insignificant. So much for Ireland ‘punching above its weight’ on every global street corner!

Government Ministers, understandably, have nothing to say on the McCarthy cuts agenda, since they cannot pre-empt either the estimates process or the Cabinet decisions that they will have to take in the Autumn. Even the Green Party ministers, as partners in Government, are circumspect on what will comprise an acceptable package, until their negotiations with Fianna Fail on a redirection of the Programme for Government are completed.

A quick scan of the Fine Gael website might give rise to the impression that the McCarthy report was not published at all last week – with the exception of some non-committal contributions to radio and TV debates by Richard Bruton, the party’s silence on the report has been notable. Predictably, the Labour Party has issued a raft of statements pointing out the disastrous consequences of McCarthy’s prescriptions in every area of the public services, but without proposing alternatives. The public service trades unions distinguished themselves by rejecting the report even before it was issued and other interest groups, notably including the IFA, are gearing up to preventing any cuts that will affect their particular sector. If the Government buckles and goes along with what suits its political interests rather than the national interests, then the game’s up. The worst political delusion probably is that things can’t get any worse than they are now.

At the end of it all we can be sure of one thing: Humpty Dumpty Ireland will never look quite the same again. And if our national capacity for self-aggrandisement and self-delusion are among the things that are swept away, maybe it’s no bad thing at all.