News Comment

Wednesday 1 October 2014

End of austerity era should be reflected in bright fresh faces around Cabinet table

Published 11/07/2014 | 02:30

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Taoiseach Enda Kenny
Taoiseach Enda Kenny

National politics is all about the power of persuasion to your point of view. This Govern-ment desperately needs to reconnect with popular opinion after the drubbing of local/European elections. Offering old wine in new bottles doesn't work. Enda Kenny now has a unique opportunity for an Operation Transformation recasting of the actors and script of this Government's narrative. It looks like he's about to bottle it by not dropping a single senior minister from Cabinet.

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Tectonic plates shifted for the Government this week. And it wasn't anything to do with a reshuffle. The watershed was the official ending of the austerity era. A new consensus is emerging about budgetary prospects for 2015. A combination of half-year exchequer returns, revised GDP/GNP statistics, ever improving growth forecasts and contemporary budget submissions mean that the public finances have shifted from a vicious circle to a virtuous cycle.

The trajectory of deeper spending cuts, higher taxation, resulting in depressed consumer spending is set to be replaced by extra revenue, less welfare costs achieved by more consumption, investment and employment. After five hairshirt years, expect two benign budgets to accelerate the feelgood momentum. A dramatic shift is now possible in the Government's story from discipline to development.

A change of faces around the Cabinet table is not set to be radical enough to avail of the opportunity to book-end dramatic deviations from an era of cold severe harshness to a fresh period of economic opportunity.

Dismantling the Economic Management Committee membership by moving Michael Noonan to Foreign Affairs and Brendan Howlin to Justice (where they would both be ideally suited at this stage of their careers) could have provided a stark change of emphasis, along with Joan Burton's leadership change.

Altering monetary ministers maximises a revised imagery – remember Major for Lawson and Cowen for McCreevy marked sufficient brand change to secure re-election for a further term. Limiting moves to minimal or zero casualties, merely musical chairs of lesser ministers and ministries, means the Taoiseach comes up short.

We have surpassed anecdotal sentiment surveys of green shoots to orthodox official planning for enhanced public and private sector investment. The 2015 Budget preparations provide a benchmark moment in our politics. The foremost abiding political rule is that politics ALWAYS follows economics. So IBEC's budget submission is significant: their analysis proposes we can meet our international fiscal budget deficit target next year of 2.9pc with a net adjustment of only around €100m, which could be achieved by routine increases on the old reliables of booze and fags.

While they actually propose a €200m adjustment to achieve a 2.7pc deficit, it's their underlying assumptions about macroeconomic growth this year (3pc) and (4pc) the next, along with a broadening and deepening of the recovery, that heralds the end of our depression.

When even former austerity hawks articulate such a step change, it's time for us all to strike a more optimistic tone.

There are two banana skins that could cause the Government to slip up. Continued failure to effectively manage any ceiling on health spending may result in an overshoot of €500m; while Irish Water has no track record of collecting revenue, so assumptions that it will obtain its target tariffs of €500m stands in jeopardy.

Aside from these caveats, a growing economy can allow the Government to proceed with party agendas to garner votes in 2016.

For the first time, positive plans can be promulgated. Behind tiresome, much delayed, tactical manoeuvres of a tug-of-war between FG and Labour over ministry of the Job's Department, there's now a positive upside opportunity to being in office over the coming years.

This game-changer coincides with Joan Burton's elevation. Her baseline demands amount to an agenda to prioritise the needs of the 'working poor'. It makes sense to remove welfare traps by tax reforms for low-paid workers; accessible social housing/affordable long-term rental accommodation. It's readily achievable to deliver focused improvements of €20 per week to such families.

A commission on the minimum wage will be implemented, even if recommendations aren't mandatory. Within a limited timeframe of less than two years, thresholds for exemption to PAYE and the Universal Social Charge can be significantly increased at a cost of less than €350m.

This impacts most favourably on fastest-growing segment of the labour market – part-time, seasonal and casual workers. Enhanced economic prospects mean hundreds of millions of notional savings in her social protection department, which she could readily redeploy towards enhanced housing benefits. Fine Gael's target electoral group for enhancements will be middle-income earners.

It's inescapable that the threshold of €32,800 to pay a marginal tax rate of 52pc for a single person will have to be significantly raised. Each thousand euros it's lifted is worth a net €200 annually.

Modest incomes are taxed at rich rates; it's the main driver of graduate emigration. The tax base has been broadened through property tax and water charges, current bands represent penal impositions on ordinary workers. Continuation of 9pc VAT on the hospitality sector is fundamental to sustaining tens of thousands of jobs. The key dynamic will be to restore capital spending – infrastructural developments that'll foster cons-truction of 25,000 houses a year.

By launching a three-year multi-annual investment programme, they can maximise supply-side economics and job prospects. However, unless they revisit unresolved inoperative insolvency legacy issues many SMEs and families cannot move on.

The Taoiseach's belated intervention into the Garth Brooks fiasco underlines his deft capability to ride public opinion. He found €50m reasons to apply pressure on Dublin City Council CEO Owen Keegan – a masterful tactical move, irrespective of the outcome. On the upside, he gets the credit; on the downside, he's done his best.

But it's when it comes to medium-term strategy of winning the next election through a revamped team and a message metamorphosis, based on a rebounding economy, that he drops the ball.

Retaining 'bed blocker' ministers James Reilly and Jimmy Deenihan displays misplaced loyalty, short sightedness, even cowardice.

Shutting the door on orderly internal Fine Gael succession planning may cost the party re-taking government in the next Dail.

Ivan Yates

Irish Independent

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