Thursday 23 October 2014

FF is finally saying what we need to hear on cuts

Published 25/11/2012 | 05:00

Pension time-bomb is ticking and someone must think outside the box to solve the problem, says James Fitzsimons

The party that was dead in the water might be making a comeback. It is certainly saying what the public wants to hear. In its alternative budget proposals, Fianna Fail would cut the outrageous pensions of former Taoisigh Brian Cowen and Bertie Ahern, as well as other senior public servants and bankers. They advocate cutting public sector pensions of between €75,000 and €100,000 by 25 per cent and those above €100,000 by 30 per cent. Fianna Fail would also cut bankers' pensions by 40 per cent. That would leave retired bankers with €200,000 or €300,000 to scrape by on.

They claim they have drafted legislation that would stand up to any challenge. But the Government says it cannot be done.

It's a pity that Fianna Fail didn't do this when they were still in power. It is not as if they didn't know that what was happening was wrong. Maybe this is just more of the hot air we are so used to in politics. But if the penny has finally dropped and a new, more capable and effective Fianna Fail is making a comeback, then game on and watch out Enda Kenny.

The old Fianna Fail should be dead and buried, but like it or not, we could use a new one that has learned from its mistakes. It's saying what a lot of people were waiting to hear – but it will need to do a whole lot more to claw its way out of the abyss into which it has sunk.

Cutting the pensions of ex-Taoisigh won't save the economy but it will give a disheartened public a much-needed boost. Tinkering with the outrageous pensions of senior public servants won't save much either, but at least it recognises that the whole thing got out of hand.

Fianna Fail hasn't come up with a plan that could redeem us. But it's the closest anyone has come in a long time to addressing the issues.

They would seek cuts in public sector pay and allowances to save €350m a year. But that's not nearly enough when the outlay is close to €20bn. At least they are looking for much-needed cuts, in spite of the barriers that the Croke Park agreement presents. Brendan Howlin has failed abysmally. If the party's new initiatives are to gain public support, it needs to go for total reform and restructuring of the public sector. The voluntary redundancies just created more dependents for a State that cannot cope.

Someone needs to break the stranglehold that hospital consultants exert on the State. They cannot be influenced by the judiciary, who claimed that they should not pay like everyone else. We need to rationalise the public sector so that it does what we want at a price we can afford to pay. That's the only way to save it.

When we were dirt poor and wages were low, there was a case to give public servants a job for life and in return secure a public administration system that delivered what we needed.

That time is long gone, as should be the welfare state that is dragging us down. If the public sector was reformed we could get on with the task of making the economy prosperous again. We spend too much on health and education for what we get.

Education should be the easiest to sort out, at least up to second level. It is at third level that the salaries and costs spiral out of control. But like the public sector in general, pensions must be radically reformed.

Unless pensions are funded, they should be capped at a very low level. The private sector can no longer afford to pay. Our taxes provide the best pensions in the world for public servants, while the private sector is left to pay for our economic ruin. There is no denying the importance of education, but there are too few at work to bear the burden for the rest. And it's not a case of dumping the entire bill on those who pay for private schools either.

Spending on healthcare is much more complicated. It is controlled by the elite, many of whom will not cut their outrageous expectations to help restore balance. The Government is keeping costs artificially high by subsidising healthcare without the proper controls in place. Health insurers pay the elite what they demand. That pushes up the cost, which is paid for by a declining customer base. The Government pays for the rest because it has no choice. Something's got to give.

We need the tax relief for health expenses to help cover the cost, but this in turn keeps prices artificially high, even though tax relief was cut in two. An effective government would bring healthcare costs under control. Ours is powerless to do anything.

The Government pays for those who cannot afford to pay themselves. But many are stuck in the middle and their quality of life is diminished because they cannot afford to pay and no one will cover their costs. We will never get affordable health coverage while the cushioned elite rule the roost.

Hospital consultants provide a prime example of the outrageous cost of public sector pensions. They are an elite among workers. They are the best paid in the public sector and their pensions are the highest too. Many also have private-practice income. So why do they need a pension to sustain them in retirement, given that their wealth is enough to take care of their needs? If we don't pay them enough for what they do, maybe that should be reviewed. But let them provide their own pensions.

By the time we resolve the economic mess, the pension time-bomb will be ready to explode. Anyone who sorts that out will gain public support. Cutting tax relief for pension funding –which Fianna Fail now supports –is not the way to go. At least not while public sector pensions are protected. Mandatory funding for all could sort that out.

But there are indications that Fianna Fail may be thinking outside the box. Maybe they'll surprise us. We can only hope. The others sold us out.

James Fitzsimons is an independent financial adviser specialising in tax and financial planning

Sunday Independent

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