GREETINGS from Saxony where, just like in Ireland, today is a special day. In Ireland it's Halloween and even if they don't appear on your doorstep looking like the Addams family, Brian Cowen, Brian Lenihan and Mary Harney last week gave us the Omen-like prophecy of €15bn in cuts by 2014.
In Saxony, it is Reformation Day, the day Martin Luther hammered 95 theses onto a cathedral door in the Saxon town of Wittenberg. That began a crusade against indulgences and superstition that changed the world. On Thursday, our Ambassador to Germany Dan Mulhall, the German Irish Chamber of Commerce and myself were in the Saxon capital of Dresden on the last leg of a tour bringing facts and figures to German business people who so far have only heard the tabloid story about Ireland being the next Greece.
The event didn't cost taxpayers a cent. Unlike Farmleigh last year, no one claimed a fee. And there wasn't a Merc in sight -- Germans don't tolerate such nonsense. And it's thanks to their no-nonsense approach to competition and public sector salaries that unemployment in Germany is now at record lows.
In Ireland the reformation hasn't happened yet. Here, hereditary princes tell us tales of hell and damnation to scare us into accepting the tax hikes that will allow our princes and bishops to enjoy the highest top public pay levels in Europe. Stand up to them and you'll be branded a heretic. But it must be done.
In 2007, I warned that Government and opposition election forecasts were overly optimistic. Now the Government has created a consensus -- which the opposition has accepted -- that €15bn must be cut from our budget.
As I've argued since 2006, caution is good, and we should prepare for worst-case scenarios. But taking recent forecasts, the worst case scenario I can arrive at is €12bn. Between remaining McCarthy cuts of €3bn; a possible bondholder clawback of €5bn; benchmarking pay and pensions yielding up to €2bn; means-testing (not cutting) welfare another billion; and a billion more from privatisation -- if implemented in that order -- welfare cuts and tax hikes should be avoidable. Of course, I could be wrong. But if I am, let the Department of Finance prove it by publishing the forecast spreadsheet, and I will humbly repent.
That's unlikely to happen and Luther would understand why. He published the bible in German so ordinary folk could read and debate it. The princes wanted it kept in Latin: debate was the last thing they wanted. Today's princes don't like the idea that our crisis can be corrected without tax hikes or dole cuts. So a Halloween scare here, some fear of hell and damnation there and suddenly tax rises and welfare cuts look inevitable. And don't be surprised if after we've taken our medicine, the public sector is once again saved by a miracle. For this reason, and even if some tax hikes are needed, they should be the last thing to happen over the 2011 to 2014 cycle.
Last Tuesday one of our hereditary princes, Barry Andrews, gave us an example of Government thinking. Welfare recipients will suffer "painful" cuts, he said. At the same time, his cousin Ryan Tubridy and brother RTE comedian David McSavage have been shielded from reality by a €55m transfer to RTE from -- wait for it -- the very same Department of Social Welfare that will implement welfare cuts. His brother Neil (a government adviser), cousin Chris (a TD) and father have their salaries and pension protected by the Papal Bull we call the Croke Park deal. We should be livid. But hierarchies understand and exploit the fact that fear is stronger than anger.
There is at least a good side to this. With the NTMA tapping the bond market in January, early next year will be a crucial time for us and getting bond markets to expect the worst now raises the chance that interest rates will be falling, not rising, next year. A high forecast also has a cynical political advantage for the Government, making it much harder for Fine Gael and Labour to agree on a joint approach. Their accepting the €15bn figure is a mirror image of their acceptance in the 2007 election of overly optimistic government forecasts and could return to haunt them.
Meanwhile, another idolatrous superstition is rearing its head -- the idea that we "pay too little tax". In The Agenda for Tax Reform (2008), Donal de Butleir and Don Thornhill debunk this myth comprehensively by showing how, as a young country, Ireland should spend (and therefore tax) eight per cent of GNP less than the EU average. As September's dip in retail sales proves, talk of tax hikes are, along with sensationalist comment, a huge threat to recovery.
My question now is: "Where is our Martin Luther?" Perhaps it could be you. In honour of Luther's 95 theses, I suggest nine that -- if you agree and have a nail and hammer handy -- might look good on the door of your local Government TD's clinic:
Thesis 1: As the jobs and wealth creator for the nation, the private sector must not be burdened by taxes to fund public waste or overpay.
Thesis 2: Wasting taxpayers' money must be a criminal offence.
Thesis 3: Bloated hierarchies should be replaced by cost effective structures, lean and Lutheran, with fewer but better managers.
Thesis 4: Public sector salaries shall be cut to levels 15 per cent above EU norms or five per cent below private sector earnings, whichever be the lower.
Thesis 5: Semi-state companies should be sold as far as possible and competition increased to lower the cost of living.
Thesis 6: Neither tax hikes nor welfare cuts should occur until Thesis 1 to 5 have been implemented
Thesis 7: A taxpayer's charter should index tax bands and credits and the protection of key reliefs.
Thesis 8: The State should not tax the family home
Thesis 9: No person in publicly funded employment should comment on economic policy, this being a conflict of interest.
Marc Coleman is Economics Editor of Newstalk 106-108fm and presents Coleman at Large each Tuesday and Wednesday from 10pm.