Britannia Radio

A thoroughly idiosyncratic account from Ireland of its woes.  As John 
Redwood  [see "Stop feeding the failed banks" sent earlier)  points 
out "We're in the same boat as in Ireland - - - -...I think we're 
very similar apart from Euro versus sterling."

These are dire times indeed.

XXXXXXXXXXX CS
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TELEGRAPH 8.4.09
Ireland spent the money - now it's time to pay
An emergency budget has raised taxes and cut public spending in the 
ailing Irish Republic, and worse may follow, writes Sarah Carey

We're past the blame-storming in Ireland. Former Taoiseach Bertie 
Ahern blamed pessimistic economists, whom he accused of talking down 
the economy. Finance Minister Brian Lenihan - who yesterday produced 
an emergency budget that raised taxes and cut spending - blamed the 
Americans for letting Lehman Brothers go under. Workers blame the 
bankers and the tax exiles. Ireland's EU Commissioner Charlie 
McCreevy prefers to blame the British. Last week he accused the UK 
media of running a campaign against Ireland.

"Everyone knows that at some vulnerable moments in our history our 
immediate neighbours have tried to take us on. But they should 
remember this: they have never managed to take us out. And we must 
make sure that they never will." That's our Charlie.

We know two things about this economic crisis. We know our neighbours 
are enjoying it thoroughly  [!! ???] and we know that ultimately we 
have only ourselves to blame. McCreevy was Finance Minister from 1997 
to 2004 - the years of enormous growth. Some said he was guilty of 
"Fiscal Philistinism", but his brash style of politics proved an 
election winner. Fianna Fail has been in power for 20 of the last 22 
years. Whatever they did, they did with popular support.

When challenged on his popular give-away budgets during that time he 
responded: "When I have it I'll spend it. When I don't I won't". We 
sure don't have it anymore. His budget surpluses were based on a huge 
inflow of cyclical taxes like VAT and Stamp Duty. We had so much 
coming into the Exchequer that Department of Finance officials 
consistently underestimated the State's disposable income. Now that 
the credit crunch has pulled the rug from underneath the property 
market, that income has disappeared.

At the same time, government policy also focused on removing low 
earners from the income tax net. But how low is too low? Almost 40 
per cent of earners don't pay income tax. Our generous tax breaks for 
high earners further contributed to our precarious dependence on 
consumption taxes.

What did Charlie spend it on? On the plus side we built up a 
significant national pension reserve fund. That war chest means we 
have funds to call on during the crisis. On the minus side, the 
government agreed to a process called benchmarking. This is now at 
the heart of Ireland's structural deficit - the latest economic term 
to enter everyday parlance here.

As property prices soared, public servants complained they were being 
priced out of home ownership. In response "benchmarking" delivered to 
the public sector wages that were linked euro for euro to equivalent 
jobs in the private sector. Those salaries were then linked to public 
sector pensions. The result? Long-retired public servants found 
themselves with fabulous defined benefit pensions beyond their 
wildest expectations.

Meanwhile the private sector is haemorrhaging jobs, while those who 
hang on must take wage cuts as they watch their pensions collapse. 
While they suffer the slings and arrows of the free market they look 
on bitterly at their public sector colleagues. If they got 
benchmarking on the way up, why don't they take it on the way down?

How does Finance Minister Brian Lenihan deal with this divided 
society and find the money to pay the bills? He's battling everyone 
from the state's employees to our new colonial masters - the credit 
ratings agencies. They haven't exactly helped. Not only did they 
downgrade our credit rating before yesterday's important budget but a 
Standard and Poors spokesman expressed a desire for new faces in 
government. For once, unity in the Dail as all politicians told S&P 
our government was none of their business. An apology was extracted.

Lenihan's only friends have turned out to be in the EU. Despite our 
dismissal of the Lisbon Treaty, all the vibes indicate that they'll 
turn a blind eye as we smash through the limits set within eurozone 
countries for national deficits and borrowing requirements.  [They 
hadn;t got any option had they.  It would have bust the eurozone to 
have applied the rules !! -cs]

For months now, commentators and the public have expressed 
exasperation that the government failed to take action last year to 
fill the gap in the finances. The debate amongst our celebrity 
economists has raged between those who insist that public spending 
must be slashed and those who demand that taxes are raised. All agree 
on the new cliché - sharing the pain.

Yesterday's budget was painful alright. Nothing was spared and 
Lenihan probably satisfied no one with his Solomon-like decisions. 
He's cutting public spending by ?1.5 billion and adjusting taxes in 
the hope of raising ?1.8 billion, adding up to a deficit-busting 
?3.3bn.  [per capita that's equivalent to £45 bn here - WOW! -cs]

Generous social welfare payments have been slashed and emergency 
income tax levies have been doubled. Minimum wage earners will now 
pay some income tax. He even cancelled Christmas - the traditional 
dole double payment in December has being cut. Worse, we know there 
is even more to come over the next five years. The war between public 
and private sector workers will continue to rage as his speech 
included precious little about public sector reform. But maybe he's 
still thinking of keeping those unions on board and off the streets.

But what everyone wants to know is whether the bond markets, on whom 
we depend, will be impressed. If the international money markets want 
to see us suffer, then suffer we will. Everybody has lost, and all 
must have -----sacrifices.
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Sarah Carey writes for the Irish Times