Tax burden to weigh heavy on ailing ship
That old Kerry chestnut; if I wanted to get to Kenmare, I wouldn't start from here, was never more appropriate. If you wanted to steer an economy through the worst global recession in 80 years, you would not start from where Ireland finds itself. But that is where we are.
Back in October, the Government, despite having an early, emergency Budget, did not know quite how far in the woods we were stuck.
Neither did most people. For a while, as the evidence emerged, the Taoiseach and his ministers seemed too appalled to face it.
Yesterday was the day they did so. It is, of course, utterly appalling.
Between the two Budgets and the public sector levy, around €5bn has been added to the tax burden. That is about 6pc of personal income and will knock a huge hole in the typical Irish household budget.
But the unpalatable fact is that we have not been paying for our public services -- education, health, policing, social welfare and so on.
It is the worst possible time to have to do so. But were it not done, the combination of the taxation gap and the recession would have the Government seeking to borrow around €24bn this year.
The chances are high that they would not have got it.
Government workers and social welfare recipients would not be paid. The demolition men from Berlin or Washington would be called in.
A large part of the Budget strategy is to ensure that this disaster does not befall the country.
The markets were thought unlikely to accept the emerging borrowing requirement of €23bn.
Their doubts were made clear in the controversial comment by the credit rating agency Standard & Poors that a credible plan might not emerge until after a general election.
Mr Lenihan has tried to produce that credible plan with a €3.7bn hike in taxes (over the course of a full year) and a €1.3bn reduction in spending plans for the rest of this year.
It is indeed the most severe imposition of taxes in any previous Budget.
Even so, on its own figures, the Government will need to borrow another €60bn over the next four years.
Those banks and pension funds who will be asked to lend it can now see that the Government is prepared to do what has to be done.
But they may still have doubts as to whether the economy can take it and whether, therefore, it is credible.
Their analysts will certainly query the Government's forecast that the economy will shrink by 8pc this year.
Some are suggesting that an extraordinary 10pc reduction in national output is possible, after what the Budget has done to disposable income, and the likely effect that will have on consumption.
Part of the problem is that it has not yet proved possible to get large cuts in public spending, so more has fallen on taxation. But actual reductions in spending seems to defeat most governments in most places, except in dire emergencies.
Mr Lenihan promised that things will be different next year, and the year after, when he and the cost-cutting 'An Bord Snip Nua' have worked out how to do it.
A minimum of €4bn will be taken off current spending by 2011, he says. There is even to be reverse benchmarking for top public servants (and ministers) to cut their pay towards that of their equivalents in other countries -- people like Barack Obama, Angela Merkel.
One bets it will only be for new promotions, though.
It also seems odd that the only group to receive anything in the Budget were public sector workers, who got a not inconsiderable €100m cut off their pension levies.
This was to help the lower-paid, but the cost was passed to the taxpayer, not the higher-paid.
These details were an unwelcome reminder that the plans call for another €4.6bn in new taxes over the two full years from 2010. More than €2bn will be raised in the December Budget, now only eight months away, and another €1.5bn in 2011.
Analysts had been hoping for considerable detail on how this might be done.
All they got were the obvious suggestions of taxing Child Benefit, carbon taxes and "a form of property tax".
More important is that the crude levies are replaced by a sensible new income tax system which does less damage to employment.
There will probably be a warmer welcome abroad for the scheme to remove bad and doubtful loans from the banks. Ireland will be one of the first, if not the first, of the EU countries to set about this task, but others will have to follow.
In a novel form of "printing money" there will be no immediate cost to the Exchequer.
It will be quite some time before the losses on these loans are clear and the arguments can begin about how much the banks can bear, by way of a levy if needed, and how much will fall on those same hapless taxpayers.
