The Fianna Fáil Ard Fheis, recent opinion polls, and normal political activity are all being overshadowed by the perilous state of the economy. I have always believed that politics follows economics – to coin Bill Clinton’s phrase “It’s the economy, stupid”.
The state of the public finances, bank crises and exploding unemployment have shaken the body politic to the core.
Since last July the Government has talked the talk about the public finances. It has not dealt with the core of the problem. Total state expenditure in 2000 was €26 billion. After all the alleged cut backs we will spend €54 billion this year. Our likely tax receipts will be around €34 billion.
The gap between incoming and outgoing money can be sustained only by borrowing. Eventually the EU Commission, international credit markets, or the International Monetary Fund will impose restrictions on lending to us.
Our cost of funds is among the most expensive in the EU, on a par with Greece. The Government has no choice but to urgently stabilise the public finances. This cannot await incremental steps over the next three years.
While taxes will be raised further, we should remember that virtually all the Government actions to date have been revenue raising. Last October’s budget raised taxes by more than €2 billion. The public service levy is a tax hike by any other name.
Our political class seems incapable of doing what every business has had to do when faced with a 20 per cent drop in revenue. Employers have had to cut costs to survive. The Government needs to cut public expenditure by €7 billion. To date it has only stopped the growth in expenditure – not reduced it.
Let’s start with the Public Capital Programme. They plan to spend €8.2 billion this year on National Development Plan projects. This should be halved. Priority should be given to broadband and affordable vital transport projects.
Assumptions of population growth have altered due to immigrants returning home. Many projects can be deferred indefinitely. The politics of postponement are the least painful. Capital spending cannot be a sacred cow.
The Government seems to be one committee away from action. An Bord Snip and the Commission on Taxation are the latest instruments of delay. The OECD has already said that our State organisations resemble an ‘organisational zoo’. The Department of Transport alone has 34 agencies under its remit. There is blatant wastage, duplication, and inefficiencies. We need to rationalise and eliminate certain quangos.
Within Fás there has been profligate spending. The prevailing culture, over the past decade, within the public sector has ignored value for money, thrift, and frugality. Luxurious foreign travel, excessive consultancy budgets, and top heavy administration have all been endemic.
The public sector pay bill is €19 billion. Employing more than 350,000 people, it is the biggest single component of public expenditure. Public services is a people business. The pension levy and pay freeze make significant pay savings. Pay levels should not be confused with total payroll costs. The difference is numbers. The HSE has 3,000 administrators surplus to requirements.
Increased productivity with lower manning levels has prevailed in the private sector. Bonuses are being eliminated. Administrative staff are on a three or four day week - reducing costs by 20/30 per cent. The only public sector solution is a severance scheme to make our State bureaucracy leaner and more affordable.
This Government has to down-size itself. It can then report progress on stabilising the public finances. Politicians have to face up to the reality that if they don’t act quickly our creditors will take more stern action in 2011. In the 1980s, due to deferred decisions, all our PAYE taxes went to pay the interest on debt. The time to act is now.
