Monday 22 December 2014

Caring Coalition - but still steering towards austerity

The Coalition is targeting the middle ground, but promises remain subject to the economy's strength.

Published 13/07/2014 | 02:30

Phil Hogan is still Brussels bound. Photo: Tom Burke
Phil Hogan is still Brussels bound. Photo: Tom Burke

Has the Government lurched to the left now Joan Burton has a hand on the helm? That was among the many questions raised by the change of leadership in the Labour Party. On the basis of the revamped Coalition's 10 pages of priorities unveiled last week, the answer to that question is No.

While most of the attention on Friday was on the personalities in Cabinet, the "Statement of Government Priorities" document published that evening contained the detail, such as it was, on how the reshuffled coalition would be different in its remaining months in office.

The document, if it were to be summarised in a single sentence, points to both parties focusing on winning the centre ground, not being radical in how they achieve that and trying to sound more caring as they do it.

The heavy emphasis on improving the lot of low and middle income "working families" is a sign that Labour appears to have given up on welfare-dependent voters who have been lost to Sinn Fein, while Fine Gael sees no gain in being portrayed as the party of the well-heeled, particularly as there is no party (yet) to threaten it from the right with a tax-cutting agenda.

Both coalition partners look set to compete for the same middle ground over the time that remains before the next general election.

The new priorities amount to tweaks and additions - many of which are to be welcomed - to the original Programme for Government, not anything more. For a Government that has never been radical, it is clear that its appetite for change hasn't changed with a new Tanaiste.

That is to be seen in the heavily caveated talk of tax cuts, which will only happen if the economy is still going in the right direction when Budget 2015 is signed off in October. And even if some have the burden lightened a little, others will pay more as changes will be "fiscally neutral".

Non-radicalism is also to be seen in the limited new spending commitments, which, when taken together, don't appear to exceed €100m annually (and in the broader scheme of total annual government expenditure of €70bn, that is small beer).

Not included in these spending commitments are those on housing. Much discussion on issues around housing took place in the run-up to the reshuffle, as prices and rents in the capital jumped, squeezing many and causing an increased incidence of homelessness.

The issue duly got its own section in the priorities document on Friday. Changes to the planning laws are to be enacted, an end to homeless by 2016 was promised and targets on increasing the supply of new homes were reaffirmed.

But achieving the housing goals will be difficult. Unlike other new spending commitments, those on housing are to be funded off the State's balance sheet. As off-balance sheet funding is little more than an accounting trick, there are rules aplenty in Europe against it. If the statisticians in Luxembourg determine that one or more of the Government's housing initiatives has to go on the State's balance sheet, it will probably not be possible to pursue it. Another reason to be sceptical is the namechecking of the European Investment Bank (EIB) as a source of cash for the housing programme. It is a very reliable rule of thumb that when politicians anywhere start talking about the EIB they are usually clutching at straws.

Among the genuinely good initiatives confirmed on Friday is the establishment of a "Low Pay Commission". The idea has been borrowed, without even a name change, from Britain. Across the water, Tony Blair established that country's low-pay body in 1998 to set the then newly established minimum wage. Ireland's commission will be a carbon copy. It can only be a good thing that the setting of the minimum wage is done as rigorously as possible, and it does no harm politically for the Government to be signalling to "working families" that low pay is high on the agenda.

Another new initiative which can't be faulted is the intention to publish an Entrepreneurship Policy, aimed at achieving a 25pc increase in company start-ups over the next five years. Until recently there had been much self-congratulatory talk in this country about what wonderful entrepreneurs we are.

While we have many great companies and business people, all the evidence points towards lower levels of entrepreneurial success than in peer countries - most notably the fact that just 10pc of exports are accounted for by homegrown businesses (without the exports of foreign companies, Ireland would be the most closed economy among the 28 members of the EU). A specific focus on the reasons for Ireland's limited success in business - and what can be done to change that? - is very much to be welcomed.

What would have been welcomed by all entrepreneurs was conspicuous by its absence from the priorities document. There was no commitment to follow-through on ending the indefensible anomaly whereby the self-employed pay a marginal tax rate of 55pc on income over €100,000, while those in safe salaried jobs pay 52pc on identical incomes. The legislation which penalises the self-employed is due to lapse this year, but there was no commitment not to extend it.

Among the positive "non-changes" under the Kenny/Burton regime is the retention of the Economic Management Council (EMC) in the configuration that has existed since the Coalition came to power.

The EMC is a cabinet sub-committee designed to allow the core of government - Taoiseach, Tanaiste, and the two ministers responsible for the public finances - to manage the economy effectively. Despite naive wittering about it being unconstitutional and undemocratic (it is neither), the EMC has done much to prevent the chaos of the Cowen era and the disorganisation of the full cabinet meetings chaired by Garret FitzGerald - the last time a Fine Gael-Labour coalition held office in a time of economic crisis.

Despite making no secret of her dislike of the EMC while Eamon Gilmore was Tanaiste, Joan Burton has not sought its dismantling, now she has a seat on it.

Also in Friday's document is a commitment to achieving the impossible - having taxpayers in the rest of Europe pay for our banking fiasco.

Anyone who has ever raised the matter with those who are being asked to pick up the tab knows that it is a pipe dream - but the Government has recommitted to expending its diplomatic resources on achieving the unachievable. Apart from around €5bn which the ECB imposed on the Irish sovereign, the rest of the €65bn was taken on by an Irish government because it believed it to be the least bad option available at the time. It was not done altruistically, to "take one for the team", as those who like playing the hard-done-by victim claim delusionally.

Despite this, the revamped Coalition continues to flog the dead horse of European compensation. In fairness, it does so because there is little choice but to do so. Giving up on retrospective recapitalisation would be seized upon by both the Opposition and others as a sign of weakness. To be accused of meekly capitulating and not fighting for the national interest - no matter how spurious the charge - is never something any government wants to try to explain. The retrospective recapping charade is one that will continue to the next election, and most probably beyond.

The continuation of this forlorn effort reflects the considerable degree of continuity in the overall strategy now that a new Tanaiste is in place. What has changed most has been the packaging.

The emphasis on "social recovery", as well as economic recovery, is deemed to give the coalition a softer, more caring aura. If the economy allows an early end to austerity, and voters warm to a seemingly more caring government, a very faint hope of re-election could just reignite.

Sunday Independent

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