independent

Friday 18 April 2014

Brendan Keenan: Michael D, your only man to sell us economic vision

Perhaps the most instructive poll in the presidential election was the one that asked voters what they looked for in a head of State.

Top of the list came "honesty and integrity". Doing something about jobs and the economy was well down the pecking order. It would, of course, be the other way round in a general election.

Looked at in this light, the presidential campaign was a diversion from the grim realities of governance and policy. It is possible that Sean Gallagher's early success was in part due to a belief that his business connections might give him some extra influence on economic policy. Even if true, as far as he was concerned, it looks as if honesty and integrity issues counted for more in the end.

Voters understand that the president really has very little role to play in the bread-and-butter issues. One of President McAleese's few missteps was the failure of the high-profile campaign to find ideas that would create jobs.

Such efforts may have an impact at the margins -- which means a big effect on some individuals' lives -- but they can do nothing for the big issues of a 10pc fall in employment and a 400pc increase in unemployment.

The big bread-and-butter issues are about to return with a vengeance; with less bread and an even bigger cut in the butter ration. This week sees the start of the 2012 Budget process -- a process that is now an annual horror show, and will be for several more years to come.

First up will be the capital programme of government investment for 2012. Public investment is withering away under the financial pressures, as it nearly always does in tough times. The 1980s left the country with woefully inadequate infrastructure and only the boom, real and phoney, of the next 20 years allowed it to catch up, although not to the highest standards.

The same thing may well happen again, although one would have to be a real optimist to think there will ever be a catch-up opportunity like the 1990s again.

Things are not helped by the fact that the capital programme contains a €3bn annual investment which is actually money to cover bank losses.

Only €4.3bn is so far allocated for actual investment in schools, hospitals, roads and so on next year -- which is just 3pc of national income. That is not enough to keep pace with the advanced EU economies, even if the money were spent efficiently. All the evidence suggests it is not.

Here is something the Government could do -- and has said it will. Keeping the promise to make public investment and procurement more efficient, so that the miserly €4bn buys everything it possibly can, will mean being tough -- not just on the construction industry, but on the spending departments of education, health and transport.

Whatever they do, capital spending will continue to be the forgotten budget, when compared with the great political issues of taxation, spending and welfare. In the following weeks, we will see how the Government plans to keep its promises; to the troika and to the rest of us.

Those promises included a €900m reduction in spending on public services, a €2.6bn increase in tax and levy revenues, and no hike in income tax rates or cuts in social welfare payments.

IT will at least be interesting to see how the promises are kept, or portrayed as being kept, but it cannot be pleasant. It would seem that spending taxes, such as VAT and excise, will have to carry a lot of the burden. There will be something from a property tax, and other charges, but tax credits and bands will be vulnerable if rates are to remain unchanged.

Nor can the social welfare bill be untouched, even if payment rates remain the same. All that is straightforward arithmetic. A bigger question is whether these decisions will be underpinned by analysis showing why the Government sees them as the best way to improve the public finances while doing the least damage to employment and future growth prospects.

All of this is not going to be easy for President-elect Higgins. As a politician, he was a committed socialist. He expressed his views with passion, eloquence and, indeed, honesty and integrity.

Now, he will be the people's chosen representative, but muzzled by the constitution he embodies while all kinds of things happen with which he is bound to disagree profoundly. Can anything be done, before he boils over in frustration or, worse, sinks into embittered silence?

Not much, but perhaps something. The most difficult thing for the Government is to stitch together into something which can be presented as a strategy, the conflicting threads of reducing borrowing, protecting the most vulnerable, promoting exports and investment, and meeting the requirements of our lenders -- whether troika or the markets.

If it could manage that, and convince Michael D of its merits, there could be no better man to sell it to the rest of us, and convince us that we should pull together to make it succeed.

Irish Independent

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