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Saturday 20 September 2014

Coalition's cowardice on debt and Croke Park

Experts hammer Government over 'dismal failure' and 'la-la' economics

Published 20/11/2011 | 05:00

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Four days after the Taoiseach had a meeting with German Chancellor Angela Merkel, Mr McCarthy said that a comment by Enda Kenny in Berlin had "undermined" the country’s case for a better deal from the EU/ECB/IMF troika.

The Government is fiercely criticised by independent economic and financial experts today for its dismal failure and "La-La Land" approach to the two most crucial issues it has yet to confront: Ireland's case for debt relief in Europe and the runaway public sector pay and pensions bill.

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The respected economist Colm McCarthy said that the Government had "failed dismally" to make the case of debt relief "where it counts" in Germany.

Four days after the Taoiseach had a meeting with German Chancellor Angela Merkel, Mr McCarthy said that a comment by Enda Kenny in Berlin had "undermined" the country's case for a better deal from the EU/ECB/ IMF troika.

Alongside Ms Merkel last Wednesday, Mr Kenny said he hoped that Ireland would return to the bond markets late next year. But in a stark warning, Mr McCarthy said it was "time to acknowledge" that Ireland may never graduate from reliance on official lenders through its own efforts.

analysis pages 21-27, 36

The Government comes further under fire on another front today after it claimed last week that the Croke Park Agreement would generate a gross saving of €2.5bn on the public sector pay bill.

James Fitzsimons, an independent financial adviser who specialises in tax and financial planning, said that the saving may turn out to be as low as €500m annually. "The Government that lives in La-La Land has created a Disneyland for 300,000 public servants," he said.

The trenchant criticism follows a hugely embarrassing disclosure in Germany last Thursday -- a day after the visit by Mr Kenny -- of confidential details of tax increases to be introduced by the Government in the Budget for next year and 2013.

In particular, a subsequent confirmation by Finance Minister Michael Noonan that he is to increase the VAT rate by 2 per cent to 23 per cent next month, two days before the Christmas shopping spree traditionally begins, has drawn the anger of a beleaguered retail sector.

The VAT hike, which retailers say will increase cross- border shopping, close businesses in the South and cause job losses here, comes as the Government continues to safeguard what many experts believe to be unsustainable pay rates and pensions in the public sector.

John McGuinness, the Fianna Fail TD who is Chairman of the Dail Public Accounts Committee, has said of the Croke Park Agreement: "It is creating a two-tier workforce, it is creating a two-tier pension scheme and it has to be renegotiated."

Mr McGuinness said members of the Cabinet were the "glove puppets" of senior civil servants. "Social Partnership", he said, was "killing the real economy".

As the retail sector lines up to force a Government U-turn on the VAT decision, Fianna Fail leader Micheal Martin yesterday also weighed in to call on the Government "to reverse its decision".

Mr Martin also again criticised the Government's "raid" last May on the pension pots of mostly private sector workers to fund its so-called Jobs Initiative. "Creating jobs is well down their agenda," he said.

On the central issue of Ireland's massive debt burden, Mr McCarthy, in the Sunday Independent today, writes: "The Irish Government's communications strategy in dealing with our European partners poses a dilemma.

"It is important to take commitments seriously and to be seen to do so. But where this veers over into unqualified optimism about the likely outcome of sticking to the existing programme, Ireland's case for a better deal is undermined."

In Berlin last Wednesday, Mr Kenny said he hoped that Ireland could return to the bond markets in late 2012.

Mr McCarthy writes: "Unqualified expressions of faith in re-entry to the bond market 'late next year' create the impression that Ireland will be off the casualty list pretty soon, implying that the terms of the existing deal are good enough to ensure this happy outcome.

"Why offer burden-sharing on bank debt to a country which believes it can re-enter the market unaided? The professions of faith in unconditional bond market re-entry are doubly damaging if they are not credible."

Mr Fitzsimons, meanwhile, has rounded on the Government's approach to "reform" of the public sector, an issue which is increasingly exercising backbench Fine Gael TDs, who are concerned that the main coalition party has ceded authority on the issue to Labour.

In a report last week, the Public Reform and Expenditure Minister, Brendan Howlin, said that by 2015 public sector staff numbers would be cut by 37,500, a drop of over 11 per cent since peak employment in 2008. He claimed this would cut the gross public sector pay bill by €2.5bn.

But Mr Fitzsimons writes in the Sunday Independent today: "Based on the average earnings (€901.07) in the public sector, published by the Department of Finance, the saving for 37,500 would be about €1.76bn a year.

"Based on an average tax rate of even 10 per cent, the real saving would be less than €1.6bn.

"Of course if the earnings are replaced by pensions (50 per cent of salary) the annual saving is less than €800m. If pension entitlements were not commuted to lump sums [a good approximation of real cost] the saving may be as low as €500m annually."

As the Government ensures that pay levels and pensions in the public sector continue to remain sacrosanct, the outcry is becoming deafening in the exposed domestic economy where those in the private sector work.

Yesterday Mr Martin supported those in the retail sector who are trying to force a government rethink of a confirmed 2 per cent Vat increase in the Budget in three weeks.

Mr Martin said: "The single-most important ingredient that we are missing at the moment for economic recovery is consumer confidence. Until this week, all strands of political thought were agreed on this.

"Michael Noonan shattered this consensus by hiking tax on the very activity that we all want to encourage... In every community, the cry is the same -- the Government needs to think again.

"Small businesses in every town and village have been struggling for the last number of years, with many of them not making it.

"The Government still has time to think again on this issue and reverse the decision. I am calling on the Taoiseach to listen, to show leadership, and say 'No' to Michael Noonan."

He added: "This Government claimed that job creation would be its central focus. However, its record since coming to power has shown this to be another false promise.

"The raid on private pensions, the slashing of a job-intensive capital budget, the cutting of research and development investment and the attack on third- and fourth-level education show that while Fine Gael and Labour were very focused on achieving power and very effective in attaining it, creating jobs is well down their agenda now that they have it."

Sunday Independent

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