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A mish-mash of half-measures delays real pain

Yesterday's announcement of €2.2bn of public spending cuts by Public Expenditure and Reform Minister Brendan Howlin, the first part of the new two-day Budget process, show that, almost nine months after first taking office, this Government has still to make the truly difficult political decisions.

Almost a third of the 2012 public spending cuts, €755m, will come from reductions in capital spending. While the culling of such Celtic Tiger vanity projects as Metro North was not necessarily a bad thing, cutting back on long-term infrastructural investment in the middle of the deepest economic downturn since we gained independence 90 years ago, is almost certainly a false economy, however pressing the conditions.

The long term is a subject that doesn't normally greatly concern politicians and right now the key for the Government is to meet imposed guidelines. Doing so without damage is virtually impossible. Sufficiently large amounts of "savings" have to be conjured for 2012. And yesterday the Government took the first step toward the painful decisions that are required to restore our State to solvency and economic sovereignty.

Even so, the €1.4bn of savings in current or day-to-day spending announced yesterday have a distinct whiff of lowest common denominator about them.

No across-the-board cuts in child benefit. Instead it's those families with third and fourth children, who arguably have a greater need for child benefit, that get clobbered.

Labour gets to keep its promise of no cuts in headline social welfare rates. Instead, it is specific groups such as lone parents, part-time workers and those about to lose their jobs who will find themselves bearing a disproportionate burden of the inevitable cuts in the social welfare budget.

Something similar has happened with health spending where Minister James Reilly's plans to squeeze up to a further €143m from private patients being treated in public hospitals will almost certainly prove to be counter-productive. By making health insurance even more expensive, these "revenue generating" measures will almost certainly encourage tens of thousands more people to join the 110,000 who have already given up their private health insurance over the past two years.

On education, Labour also, in a way, gets to keep its promise not to re-introduce third-level fees. Instead the "student registration charge" will be increased by a further €250 to €2,250. What else are they if they are not college fees?

What we have is a mish-mash of measures to which the two government parties could be persuaded to agree rather than the coherent strategy many would argue we need to extricate ourselves from the mess.

Just one figure illustrates an inadequacy of the measures announced yesterday. Even when the costs of the Anglo promissory notes are excluded, the Government will borrow more than €13.5bn on our behalf next year. That's the equivalent of more than €50m for every working day. In other words, despite five savage Budgets, which between them will have taken a cumulative total of almost €20bn out of the domestic economy, the Irish State is still hopelessly insolvent.

With European leaders almost certain to agree to a regime of much tighter supervision of national Budgets at next Friday's summit, the Government's capacity to put off making economically necessary but politically painful decisions is set to be drastically reduced. The Government's room for manoeuvre has been further restricted by the current turmoil on the bond markets, which means that we will continue to be utterly dependent on the EU/ECB/IMF "Troika" for the foreseeable future.

What this is likely to mean in practice is that European involvement in the preparation of the 2013 Budget, which will be published in December 2012, is likely to be even more overt than was the case with the 2012 Budget unveiled this week.

Our European "partners" are likely to take a much less sympathetic attitude in the run-up to the 2013 Budget.

The Croke Park deal, which guarantees no public service pay cuts or compulsory redundancies, is likely to prove an early victim of tighter European supervision of our Budgets.

Headline social welfare rates, which in many cases are more than twice those paid in the UK or mainland Europe, are also unlikely to survive such scrutiny.

By failing to take some of the harder decisions, no matter how politically unpopular, this year the Government has almost certainly ensured that they will be taken for us next year.

Irish Independent