The government has announced that the upcoming budget will see €2.5 billion taken out of the economy rather that the €3.1 billion that was originally targeted. They say the difference will be made up by resurgence in the Irish economy. That should sound like good news to us all.
For many weeks the figure mentioned around Leinster house was 2.8 billion so the extra reduction might signal some kind of victory for those proposing a somewhat easier budget. It allows a good news story today but it has some problems beneath the surface.
Firstly, the figure of €2.5 billion is certainly as low as the government can go without getting the troika and markets completely spooked. This means that the government is taking a bit of a political gamble. They had some options here. It could be argued that they should either cut or raise that little bit extra in order to give them a cushion in next year’s figures. It is very important that the budget figures do not go off track in the coming year and fail to meet targets as happened the last time we were in the markets. If this happens our so called return to the markets may be a short lived one.
Ireland is undoubtedly at the very limit of the austerity it can take and the government seems to have decided that it must ease this as much as it can right now and it could not afford banking anything for next year. It does mean that there is no wriggle room in these figures. Everything has to work out exactly as we predict. Unfortunately fate has not always been kind in that regard. Ireland is still at the mercy of the world economy. If things pick up there then Ireland can accelerate quickly, however if they don’t or if the world situation dips, Ireland suffers more than most.
So, a political decision has been taken and it may represent the government efforts to restore its image. Surely this is also good news for Labour? On the surface it is. There is another problem though. €2.5 billion still represents a lot of harsh cuts and taxes. The €600 million difference can look paltry by comparison. Then there is the problem of presentation. Today, labour and others can praise the fact that they eased the austerity. However, we don’t know what that easing represents. It is impossible to state now what cuts are off the table as a result of this change.
Once the budget is delivered people will be annoyed at how it affects them. Telling them it could have been even worse will not really appease that. Without being able to put extra services on, or reinstate services, then this €600 million becomes nothing more than an illusion to the voter. How does a government make a good news story on budget day? Picture the quote being ‘Yes we cut the number of teachers and will close some hospital services, but on the upside we could have been closing entire hospitals’. Doesn’t really work does it? In fact it makes you feel even worse and probably angrier.
Now the government has one short term advantage. In the modern age, Budget day itself is never as bad as we expect. We live in terror of it then we hear the headline figures and it doesn’t seem too bad. The implementation of those figures and the detail behind them only becomes apparent as the year progresses so we don’t feel the pain or anger until the budget is long over and we then start paying the price. This gives some breathing room to a government. Their main task must be to avoid a big ‘headline’ issue. Like the medical cards were for FF in the past. It must stop any single cut or tax raise causing consternation on the day. That is achieved by keeping them all a bit vague or else highly complex.
The problem with the upcoming budget is that Ireland is at its limit and the difference between €2.5 billion and €3.1 billion will be lost on many that the budget affects. The economy has been cut to the bone, services are threadbare, those on welfare are in danger of going under completely, those with mortgages are just hanging in there, those on low to middle income jobs have been squeezed so much they are ready to pop. Any move, however slight is going to hurt deep now. It wont be forgotten either.
The government will gamble that it can do this budget and the next 12 months will see a significant change in the economy and a glorious return to the markets. If it works then they can be well pleased. However, since this crisis began, every government decision has been hoping for a change in the next year. A few more stable figures and markets making demands, as opposed to the troika, might sound good to the politicians but it won’t make a jot of difference to the people. Unless it’s going to put money in their pocket they will find this hard to accept and it’s difficult to see any money arriving in pockets anytime soon.
In 1989 FF faced the country having spent the previous 2 years stabilising the economy. That government was widely regarded as having done a good job with a little help from FG in opposition. The figures were improving. FF however, lost seats, not many, but it still hurt. Despite their work, nobody cared because people were still suffering the pain. In 1992 the outgoing government was pointing to a big improvement in figures and economic growth. That election was decided by the question of trust, ethics, honesty and a desire for change. The slowly improving economy was still not putting enough money in pockets for people to forgive the government the things they held against them. In 1997, the outgoing government faced the people with the economy improving steadily, complete budgetary stability, ongoing improving growth and increased spending. They too were pushed aside as the debate raged about tax decreases and how to spend money now. In fact the only government to benefit from an economic boost was in 2002 and this was because it came at the very height of the boom when pain was a distant memory and good times were rolling. We are a long way from that point.