Brendan Keenan

Monday 28 July 2014

Brendan Keenan: Tough task is to cut while trying to protect poor and vulnerable

Brendan Keenan

Published 11/09/2012|05:00

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THE IMF, it is fair to say, is not generally regarded as a friend of the poor; even if the organisation has changed since the days when it swept through impoverished, developing countries like an avenging angel.

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Yet here it is, in its new report on Ireland, sounding like Inchydoney Man, the mythical socialist conjured up by Bertie Ahern in his latter days -- with one big difference.

Inchydoney (where Fianna Fail had a famous conference) was all about spending more money. The IMF is about spending less. But a major theme of yesterday's IMF report is how that can be done with the least damage to the less well-off and vulnerable, and to the public services on which they depend.

There is endless room for argument about the proposals in the IMF report. But not about the choices. The IMF did produce another report wearing its troika hat, where it approved the next payments to Ireland, but the general report raises the question of what happens after the bailout ends and "sovereignty" is restored.

If you think that will mean it's all over, think again. Even if the bailout targets are achieved by the end of 2014, the public finance difficulties will continue. Quite apart from any eurozone rules, Ireland will have to continue to run surpluses to reduce its debt and borrowing costs.

It is a pretty dismal prospect to think these fierce arguments about taxes and spending cuts might continue for another decade.

But the IMF report at least asks the right questions. One of them is how to deal with the spending pressures which are coming down the line, and which the present system will not be able to finance.

In just the next eight years, Ireland's population of over-65s will rise by about one-third. There will also be a 15pc increase in the number of children requiring primary school education.

To coin a phrase, these are the two ends of Croke Park. It is supposed to make the public services more efficient, while costing less. The Government, and even the trade unions, are frustrated by lack of progress on the efficiency side, but any attempt to change the financial terms would scupper further reform.

Yesterday, the Taoiseach backed more rapid implementation as the only game in town. He may well be right but, again, these problems will be far from solved when Croke Park expires. The issue of pay and pensions will not go away.

Whatever is done about them, more tax revenue will also be required. Here the IMF repeats the analysis of the Commission on Taxation and many others.

Ireland is in the English-speaking camp, in having income taxes make up less than half of total tax revenue. But the British and Americans get 50pc more from corporate and property taxes than we do. Ireland makes up the shortfall by collecting more from VAT, excise on drink, fuel and tobacco, and vehicle taxes. This system benefits the better off. It will benefit them even more if the extra revenue required is raised from the same old sources. When it comes to property taxes, Inchydoney Man is strangely silent -- or often on the side of property. The same criterion can be applied to most of the controversial suggestions in the report -- putting some kind of income condition on child benefit; charging students according to the cost of their courses and the likely financial benefits to them; and means-testing of state pensions.

All such suggestions are bedevilled by the amount of debt run up by Irish households -- especially those in middle-income groups. One chilling forecast is that the resulting saving by households means consumer spending is likely to grow by less than 1pc a year until 2017.

Hopes that a return of confidence will cure all ills may well be dashed. Wishing it would all go away -- or someone else would pick up the tab -- is not an option; although it seems to be the most common response.

Irish Independent

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