Fionnan Sheahan: Reality bites opposition as 1,500 billion pennies drop
The penny drops. And 1,500 billion pennies, at that. Pale faces were the order of the day for those who came out of the Department of Finance briefing yesterday.
Whatever notions the opposition parties had of the condition of the economy before they went into Merrion Street, the mindset changed on the way back out the door.
Labour's Joan Burton, Fine Gael's Michael Noonan and Sinn Fein's Arthur Morgan got their first glimpse of reality when the department's secretary general Kevin Cardiff opened the books to them yesterday.
The scenarios painted were far worse than anybody had anticipated.
Everybody knew it would be well above the €7.5bn over four years as set out by Finance Minister Brian Lenihan over a year ago.
The €10bn figure mooted by the IMF was regarded as being in the ballpark.
Not even close.
The worst-case scenario for the population of this country over the next four years is a package of cuts to public spending and hikes in taxes worth €15bn.
The European Commission and international markets are in no mood to accept the rose-tinted predictions of governments that have got it so badly wrong in recent years.
The commission is believed to be striking a line through any overly optimistic scenarios being put forward by the Government to ensure the plan is accepted.
The fallout from the banking bailout isn't even being blamed by the department for this severe shortfall in the projected recovery of the economy.
The reasons the Merrion Street mandarins outlined are: l Economic growth: Rather than an optimistic prediction of economic growth in the region of 3.75pc, the latest projection is just 2.2pc.
- Debt financing: The cost of paying down the interest on the national debt is rising.
- CSO statistics: The economy is actually smaller than was thought, as a result of a change in the way the Central Statistics Office calculates the size of the economy.
- Tax elasticity: Planned increases in taxes will not bring about the size of revenue return envisaged.
Regardless of the official PC reasons behind the economy moving more slowly than expected, 'Black Thursday', when the €50bn potential cost of the banking bailout was revealed, did change the economic and political landscape.
There was absolute confirmation provided that this December's budget would be far tougher than anticipated.
And the Government also revealed it would have to put forward a far more detailed plan on how the deficit would be reduced to 3pc by 2014.
It was a game-changer.
The requirement to put together a credible four-year super-Budget, to be presented to the European Commission and on show to the international markets, placed added pressure on the Government and opposition parties alike.
The coalition of Fianna Fail and the Green Party would have to make public the intention to raise individual taxes and cut specific areas of spending over the following four years.
But there is also an onus on the opposition parties of Fine Gael and the Labour Party to produce genuine figures on how they would reduce the deficit.
The opposition argued that a general election was required as the Government had no mandate to set out budgetary policy over the following four years, when its term in office would only last -- at best -- until mid-2012.
Without adequate information on economic growth projections over the coming year, it would be an impossible task.
In a welcome development, the Government has taken the unprecedented step of giving the opposition access to confidential data.
It's a worthwhile exercise and will, hopefully, continue even after the country returns to relative normality.
Nobody in the political system can argue that they weren't warned about the possible extent of the problems facing the country.
Fine Gael and Labour did appear to immediately acknowledge the seriousness of the situation.
Burton said the figures given in the presentation were "very challenging", leading Government figures to believe Labour was becoming more realistic about the budgetary arithmetic and would stop peddling the populist line.
Noonan indicated that whatever his party was saying previously about its intention to have a 3:1 ratio between cuts and taxes would have to be revised.
Based on these drastic figures, there would be nothing left to cut and the party would have to resort to taxes.
"The level of adjustment now required is higher than any level of adjustment published in any plan to date," he said.
By the end of this week, Taoiseach Brian Cowen, Fine Gael leader Enda Kenny, Labour Party leader Eamon Gilmore and Green Party leader John Gormley are expected to be sitting around a table discussing the broad outlines of the country's future economic strategy.
Fine Gael and Labour do not want to be tied to any of the Government's plans as it would be far too easy for their opponents to pin the blame for the pain on them too.
Besides, Fianna Fail presided over the creation of this mess, so they can clean it up too.
Noonan and Burton found themselves in the invidious position of being the bearers of bad news to the public yesterday -- rather than the Taoiseach or Lenihan.
But it will be important that the options before the Government and the stark reality of the public finances are set out in the public domain well before the budget is presented.
In the present volatile political climate, a collapse of the coalition still cannot be ruled out.
If anything, yesterday's briefings have heightened the prospect of an early general election as some coalition TDs simply will not have the stomach to stand over the savage cuts and tax hikes to come.
All bets are off -- again -- and quite literally everything is back on the table.