Thursday 14 November 2019

Thomas Molloy: Troika is still the master of our economic universe

Thomas Molloy

MAGICIANS often rely on a disarming patter, manipulating expectations and misdirecting the audience's attention. Politicians are rarely any different.

Finance Minister Michael Noonan's avuncular manner and aversion to change often distract us from the fact that Ireland's economic destiny is shaped far from Merrion Street these days.

We still have quaint traditions such as Budget day or Dail debates on economic policy but most of this serves to do little more than direct attention away from Brussels and Washington.

Every three months there is a rude awakening in the shape of a fresh memorandum of understanding between the Government, the European Union and the International Monetary Fund.

These so-called memorandums are written in a style that suggests collaboration but are effectively a detailed Troika wish list.

Recent history shows that what the Troika wants has a habit of quickly becoming reality.

All of the seven memorandums of understanding agreed since the bailout began reflect Troika obsessions about widening the tax base, introducing strict rules to prevent fraud among middle-class mortgage defaulters and those on social welfare, spending cuts for the elderly and reform of back-to-work schemes.

The latest memorandum, published yesterday, doesn't disappoint.

All these topics are addressed in detail and the Government has been forced to promise that it will flesh out the detail to two great policy secrets that it fears will cost ballot boxes of votes: the new property tax and the rules governing personal bankruptcies.

The Coalition may have promised hundreds of times that there will be no increase in income tax but the new memorandum of understanding makes it perfectly clear that income tax will indeed rise in December.

The headline level of tax probably won't rise but Mr Noonan will ensure that more people pay the higher rate and more people start paying the lower rate.

Something similar will happen with motor tax, where the State is concerned that people who bought cars that don't pollute the atmosphere are paying too little.

The memorandum promises a "restructuring" of motor taxation so we may see something more radical, such as a cut in vehicle registration tax (which is not generating much money these days) to boost sales, accompanied by a hike in annual taxes.

While this makes no sense for a nation that imports cars, it is no less irrational than the decision to cave in to the motor industry's request for measures to avoid licence plates starting with an "unlucky" 13.

We are now also promised official confirmation about how the much-dreaded property tax will function.

The Government's unforgivable delay when it comes to explaining this important new tax is clearly coming to an end, to their annoyance, but the relief of anybody trying to buy or sell property.

That work on the property tax has got this far is almost a miracle; almost nobody inside or outside Government supports the tax publicly so a visitor could be forgiven for supposing it would not happen.

The only clue that a tax was inevitable was the last six memorandums, which all pledged to introduce the loathed tax.

We might even have legislation by now clarifying the situation on that other great political hot potato in Irish life, abortion, if the Troika had been involved.

Details on the new personal insolvency legislation are also close to being revealed.

The Government has now promised to outline by January what sort of household expenses people in debt can incur.

This means that many middle-class voters who are in debt may well be forced to get rid of their second car, private health insurance, school fees and other luxuries early next year.

It is almost impossible to imagine the Government ever finding the courage to tackle the abuse that is rampant within the system without the Troika putting a gun to its head.

That will send shivers down the backbenchers, although the shivering is only likely to become uncontrollable when the Troika forces the Coalition to explain how it will cut expenditure on elderly people.

Yesterday's memorandum makes it quite clear that benefits for the elderly will be cut but gives no detail.

The existing benefits repeatedly trigger alarm bells within the Troika because they are set to rise rapidly as the population ages quickly. The Troika, which does not have to worry about elections, is also concerned that children are bearing the brunt of the recession, while statistics show that the elderly have not registered any increase in poverty rates and the like.

The memorandums have so far remained silent about the detail but yesterday's document was quite explicit when it comes to intention.

The first page mentions that the old-age pension will remain frozen while another section says we will see strategic reforms to "contain ageing-related spending pressures", which is code for cuts to medical cards, free travel, television, electricity and all the other benefits that the State was able to grant the elderly when few of us could expect to live far beyond 65.

Health is another area that generates a lot of complaints so we can expect a lot of government guff about maintaining services in the months ahead but the memorandum is pretty explicit here; there will be cuts in health in the months ahead to bring spending back in line with official targets.

Health Minister James Reilly's department is the only department to overspend for no good reason and the Troika wants Dr Reilly get his house in order.

In normal times, the deputy leader of Fine Gael would be able to ignore a trifling matter like budget targets but these are not normal times and the IMF and EU don't really care who or what Dr Reilly is.

That's why we will see some pretty stiff measures in the remaining months of the year, which will hurt his former colleagues. Expect to see many more cuts long the lines of the agency and overtime ban in Louth County Hospital along with a lot of ineffective hand-wringing.

While the latest memorandum of understanding promises answers to many questions that have worried the public over the last few months, it lacks one essential ingredient: any hint that the Coalition and our bailout partners are considering something more radical than the existing policies agreed by the late Brian Lenihan in 2010 and executed by Michael Noonan since early 2011.

There are no big ideas such as genuine reform of the health or social welfare sectors, just recovery through a thousand cuts. It isn't pretty but at least we now know what will happen between now and Christmas.

Irish Independent

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