IN last week's Sunday Independent, your columnist Brendan O'Connor accused me of suggesting that the breathing space afforded by the promissory note deal should be given to the public service workers.
I never did so.
We are faced with cutting the gap between revenue and spending from €12.6bn this year to just under €5.4bn by the end of 2015, to meet the 3 per cent deficit target set in the EU/ECB/IMF Troika programme. The timeframe is too short. However, it seems we are stuck with it for the moment.
In recent days, the Government published its revised estimates for the period 2013 to 2016. They envisage that the deficit as a share of GDP will fall to 2.2 per cent, or €4bn, through a combination of further spending cuts of about €3.3bn, tax increases of €1.8bn and the promissory note savings, with the remainder being delivered by economic growth of 5.5 per cent.
The Troika-dictated one- sided austerity approach will not deliver 5.5 per cent growth. Instead it will jeopardise any realistic prospect of generating sufficient numbers of net new jobs and it will ensure that the economy remains relatively stagnant over the next two years. The target we are required to meet is a 3 per cent deficit and not any figure below it.
The whole thing is perverse because until now each €1bn of fiscal consolidation yields less than a €500m cut in the deficit. Indeed, according to the NERI, the proposed €1bn cut in public service pay would reduce it by no more than €250m. Meanwhile, according to the ESRI, each €1bn of austerity costs an estimated 10,000 jobs.
The alternative is to adopt the more growth-friendly approach from budget 2014 onwards, as recommended by the IMF in its ninth review of our programme. The promissory note deal affords us a vital opportunity to do it by combining the breathing space it provides with an increased infrastructure stimulus package and a higher tax contribution from the better off. The benefits of the promissory note deal could be used to offset a proportion of the €5.1bn which is to be achieved through inflicting further austerity.
Parallel with this, a targeted increase of €1bn in the tax take from wealth and those on high incomes over the next two years could be used to offset the additional take envisaged from middle- and low- income families. (I never suggested it should be given to public service workers.)
The third component would entail significantly increasing the Government's stimulus package of €2.25bn up to €7bn. See our policy document Delivering Growth and Jobs (it's available on the Siptu website www.siptu.ie). This envisages a combination of the use of monies from the National Pension Reserve Fund, funds incentivised from the private pension funds, recycled profits from the commercial semi-State companies as well as loans from the European Investment Bank.
Our private pension funds carry about €80bn on their balance sheets. Only a minuscule proportion of it is invested in Ireland. The funds should be incentivised to play their part in our national recovery while simultaneously gaining a reasonable return for their members.
The fault for the failure to exploit this potential resource does not rest entirely with the Government. It is generally accepted that each €1bn invested in infrastructure would generate 10,000 jobs. The prospects for developing such a stimulus programme are now much better because our credit rating has improved.
Overall, this combined strategy would avoid the deflationary effect of cuts and increased taxation on middle- to low-income families. It would boost economic growth in the short term, saving thousands of jobs and generating as many more, while medium to longer-term initiatives catch up.
For example, if we could reduce the live register by 50,000 between now and the end of 2015, it would save €1bn in the run-in to budget 2016.
The only significance of all of this for the public service pay row is that it would proportionately reduce the requirement to cut pay and pensions by €1bn between now and 2015. The Government has little room to manoeuvre in respect of the €300m for this year because it is already in the budget. However, a different approach from the end of 2013 onwards offers the possibility of better terms.
Ironically, it also offers the only real prospect of achieving the 3 per cent deficit target and it can be done while greatly alleviating further misery on our people, irrespective of whether they work in the private or public sector.
As things stand, we are poised to beat each other to a pulp in what could become the biggest industrial dispute since the 1913 Lockout.
It would be a tragedy to inflict it on ourselves by trying to comply with the one-sided austerity strategy when it is being abandoned wholesale by many of its most ardent proponents in Europe and internationally.
Jack O'Connor is president of Siptu