Friday 19 December 2014

Labour huffing and puffing changes nothing

Shane Ross

Published 08/06/2014 | 02:30

Joan Burton is the overwhelming favourite to succeed outgoing Tanaiste Eamon Gilmore
Joan Burton is the overwhelming favourite to succeed outgoing Tanaiste Eamon Gilmore

WILL Joan Burton scare the horses? So far, the huffing and puffing of Joan and Alex White – her rival for the Labour Party leadership – have hardly caused a ripple in the financial markets. Irish bonds are still trading below 3 per cent.

Stockbrokers are watching the Labour Party duel with a wry smile. They understand. Pretenders to thrones need to gild the lily. Coded messages about more spending are par for the political course. Once the Labour leadership ballot closes on July 4, the rhetoric may remain the same but little will have changed.

Joan is a bit of a loudmouth, but she has never resigned from anything. Alex is a loser, a pussycat in the middle of a muddle. It will be back to business as usual on July 5.

This time the markets could be wrong. So could the politicians. The complacent consensus in both camps is that government economic policy will barely change when Joan takes over. There will be no early election. Bondholders and backbenchers can relax.

Perhaps. Yet the political pressures on the pro- and anti-austerity brigades have become intense. Labour is putting the armlock on Fine Gael to abandon austerity. Europe, sensing the danger from Joan, with uncanny timing has issued a stark report, a warning to Ireland: do not be diverted from austerity. The consequences could be disastrous.

A nasty shot from Brussels was fired across the Government's bows just a day before the Labour Party rivals began to let fly. The European Commission is worried. Ireland has not fulfilled its obligations.

According to them, we need more, not less, austerity. We need more property tax. Our cuts in VAT, specifically in the hospitality sector, have not worked. We have backed away from reforming our lawyers' uncompetitive practices. Long-term youth unemployment is increasing as a proportion of the total jobless numbers. Lending to SMEs is pitiful and our spending on healthcare needs to be cut. We must not renege on our promise to reduce the deficit to 3 per cent of GDP by 2015. And behind the European Commission's forebodings lies the silent threat of a whopping great fine on Ireland's taxpayers.

Neither Joan nor Alex are likely to heed the warnings from our European masters in the coming weeks. Even though both ministers supported the straitjacket of the Fiscal Treaty they, more probably, will make vaguely challenging statements about European insensitivity. At the centre of the skirmish will be our commitment to cut spending by €2bn in another austerity budget in October.

Joan and Alex see little reason for tough measures to meet this commitment. Last month, while staking out her leadership territory, Joan claimed that there should be no further cuts in her own department of Social Protection, nor in the education sector. And in an obvious swipe at her colleague, James Reilly, she has already demanded more value for money from the health service.

Suddenly the €2bn figure is too high for the two contenders to stomach. The signs are that the oldest chestnut in financial forecasting will come to their rescue. Growth, that movable saviour but forecasting fantasy, will run higher than anyone expected. Consequently, the required deficit-to-GDP ratio will be attainable with fewer cuts. Magic dust for the contest.

Somewhere in the middle of this spat between his Labour Party competitor colleagues and the European Commission sits Finance Minister Michael Noonan. On Thursday he was reluctant to be drawn on the need for a further €2bn of cuts, kicking for touch by suggesting that we might not need the full €2bn to meet the 3 per cent of GDP deficit target by 2015.

The wily old Fine Gael fox pointed out that although Thursday's tax and spending figures were ahead of earlier projections (a sop to the Labour contenders), it was early days yet (a gesture to European caution). He insisted that Budget Day is all of four months away. A lot of good or bad things can happen to the economy in the meantime. And by then, the excitable claims of the Labour rivals will be long buried, dismissed as wild words uttered in the heat of battle.

Of course Michael knows the score. The two rivals are grandstanding. They need to convince the 5,000 Labour Party voting members that austerity is drawing to a close. They are in the bidding business. So far, the auction for the affection of Labour's dwindling band has hardly started, but before the vote closes on July 4, their promises of a soft Budget will have reached a crescendo. Neither candidate will be so foolish as to spell out specific tax cuts or detailed higher expenditure, but both will point towards a period of growth-led prosperity, beginning with the Budget.

Enda Kenny has already pledged that any spare cash will give income tax relief to lower- and middle-income earners. Hardly Joan or Alex's preferred targets. Surely they will be insisting that the cuts in social welfare be reversed? What about the medical card fiasco? Will the neglected disabled not be higher on their priorities than the squeezed middle? Whatever the fantasy growth forecasts, there will still not be little largesse to distribute.

A week ago former FG Taoiseach John Bruton caused deep embarrassment and provoked a ratty response from the Taoiseach, when he unhelpfully predicted a further 10 years of austerity.

The unpalatable truth is that both candidates have held powerful positions at a time when austerity was at its height. Joan may have sniped at Eamon Gilmore and Alex may have thrown a few shapes – but neither took the resignation route chosen by the noble (but departed) Roisin Shortall. They were complicit, biting their tongues at vital moments of misery. This weekend, their short cut to the top of Labour's greasy pole is to pick a fight with the austerity junkies in Fine Gael and to pretend to defy the diktats on fiscal rectitude flowing from Europe.

The Labour game is dangerous. On Budget Day the winner (almost certainly Joan) will be called on to deliver. There will be no fodder to feed to the faithful. One or two crumbs will be thrown from the Fine Gael table. It will not be enough. Her leadership will be stillborn.

Joan knows this full well. That is why a political crisis is far more likely. She also knows, whatever she says, that our Budget must go to the European Commission for its approval long before it is delivered in Dublin on October 15. The European Commission is unlikely to ratify any rash promises of further spending, nor to swallow any wild growth forecasts born out of the Burton/White bidding war.

Joan knows too that even the 3 per cent deficit target is not the end of the matter. We promised to reduce the deficit to zero by 2018. That means further austerity. John Bruton was on the button.

Labour is fuelling unrealistic economic expectations. Unless they decide to do a U-turn on all former policies and renegotiate the debt, the game is up. They are snookered.

More likely is the prospect of the new Labour leader grabbing a political lifeline. Hopes raised in the June leadership battle will become non-negotiable budget demands in October. An impasse will be reached with Fine Gael. The European Commission will refuse to countenance relaxation of austerity measures. The new Labour cabinet members will walk out of government, rebuffed but re-established as the guardians of the victims of austerity.

Otherwise, Joan faces oblivion. Her best chance of survival is that by Budget Day she will have confounded the sceptics and scared the horses.

Sunday Indo Business

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