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News : Irish Economy Last Updated: Dec 8, 2010 - 4:57:56 AM


Irish Budget 2011: Harsh Budget inevitable today but not a 'Domesday' verdict for everybody
By Michael Hennigan, Founder and Editor of Finfacts
Dec 7, 2010 - 7:06:09 AM

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1997: "For years we have been bled white - now it's payback time" Source credit: www.irishnewsarchive.com

Irish Budget 2011: The Minister for Finance, Brian Lenihan, will today present a harsh budget to Dáil Éireann but unlike the Domesday Book of William the Conqueror, not everybody will have to don a hair-shirt. That of course is not to say that the old victim's cross will not get a lick of varnish, whether merited or not.

John Whiting a UK tax partner at Big 4 accounting firm PricewaterhouseCoopers (PwC), believes that the Domesday Book could have been the first written tax document. Some centuries after the Duke of Normandy had added England to his fiefdom, another Frenchman provided cunning inspiration for modern finance ministers.  

Jean Baptiste Colbert (1619–83), Minister for Finance to French King Louis XIV reputedly said: "The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing."

Today is payback time and the working of Irish politics, which by default only responds with other than glacial speed when a crisis becomes dire, brings to mind quotes from Frenchman Alexandre Ledru-Rollin (1807-1874): “There go the people. I must follow them, for I am their leader,” and American comedian Groucho Marx (1890-1977): “Those are my principles, and if you don't like them... well, I have others.”

I recall some years ago a Frenchman who was trying to improve his English, pointing out some quote to me in an English language book of quotations that he regularly checked.

I noticed another quotation on the page opposite, from Winston Churchill: "It is a good thing for an uneducated man to read a book of quotations."

I was too discreet to point to the Churchill one as the Frenchman was my boss!

Before moving on from history, I present two quotes from contemporary failed Irish politicians who had strong public support before the soufflé deflated.

Mary Harney said in the Dáil Budget debate in 1998: "Cutting taxes has been the key to Ireland's tremendous economic performance.

We have cut taxes on labour, on capital, on companies. We have given huge tax breaks for investment in films, in urban renewal, in the development of tourism.

Socialists don't believe in low taxes; they believe in high taxes. Right now the biggest threat to our continued economic prosperity comes from Socialists, European Socialists who are envious of our low-tax regime and who want to foist on us the kind of punitive tax rates that have saddled them with massive unemployment. Socialism has never been very popular in this country and the last thing we want to do now is import it from Europe.

This Budget is another major step on the road to tax reduction and tax reform. As long we in Ireland keep on that road we will continue to prosper."

We now know, as some of us did forecast then, that the biggest threat to Ireland's prosperity, came not from Socialists but from Mary Harney and her colleagues, who later brought the misery of "massive unemployment," to tens of thousands of people. Her fairytale economy was built on a property boom and an exporting sector where mainly American firms were responsible for 90% of the total,
while the derided Socialists, such as the Finns, Swedes and Danes, were building their own world-class exporting companies.

"Sitting on the sidelines, cribbing and moaning is a lost opportunity. I don't know how people who engage in that don't commit suicide because frankly the only thing that motivates me is being able to actively change something," so said Taoiseach Bertie Ahern, to an Irish trade union conference in July 2007.

As to today's Budget, we have got ample warning that €6bn will be extracted from the economy in spending cuts and taxes.

Despite blather on improving unit labour costs (for example, rising chemical production and falling employment in the sector, lowers unit wage costs) and an inevitable fall in costs during a severe recession, we still have bubble-time costs in the public sector and areas of the protected private sector.

The bonanza that awaits failed politicians in a small country currently operating as an IMF protectorate is simply shameful and carries an old tradition that is very evident across the system of governance  - - scrounge what you can while you have the chance.

Like it or not, the politicians are us and like them, others are as good at passing the buck and grabbing as much as possible from the public treasury.

Some months ago, former US Senator, Alan Simpson, the co-chair of President Obama’s deficit commission, wrote to a spokesperson of an interest group: “If you have some better suggestions about how to stabilize Social Security instead of just babbling into the vapors, let me know. . .We’ve reached a point now where it’s like a milk cow with 310 million tits! Call when you get honest work!”

Last week the Comptroller & Auditor General’s latest spotlight on the contrast between the way most people handle their private finances and the wanton/shameful Irish lack of a duty of care when it comes to public funds, was on the academy of music and pianist John O'Conor. It could surely be replicated in many areas and it would for example be a shock in the morning if a university president said he could manage with less and produce more (I’m not talking about a Ford assembly line process but the rail lines of the bubble gravy train traversed every area of public spending including badly managed big value IT contracts for private consultancy firms).

Against a backdrop of politicians feathering their own nests and governments acting as arbiters between vested interests seeking as big a share as possible from public funds, it has long been evident that there is no Irish constituency for parsimony.

“The scene was sickening and all the Irish were there, most of them vying with each other in eagerness to plunder the public purse,” William Ewart Gladstone, British Chancellor of the Exchequer, wrote in an 1859 letter to his wife concerning a House of Commons debate, on the cancellation of a subsidy for the mail steam-packet service between Galway, Ireland and Newfoundland. Gladstone was facing a budget deficit of £5m.

Instead of the British, we now have the ECB and the euro to blame for our woes.

When Minister for Justice Dermot Ahern retires in early 2011, as minister and TD for Louth, the 55-year-old will be paid an initial tax-free golden parachute of €177,636 as well as a pension of €140,861 in the first year. This will be followed by an annual pension worth €128,291 for the rest of his life - -  currently linked to the pay of an incumbent office holder.

The expected levy of 9% to be announced today on  high public staff pensions is hardly a big imposition.

The average special benchmarking payment of 9% that was made to all public staff and retirees in the last decade, was the greatest abuse of public funds in the history of the State.

So the levy is only an offset and there were other related large pay increases during that period which were not merited. These people are still in clover despite a record of failure.

It's a weird situation today that the trade unions have become protectors of privilege and while some of those with job security will moan about tax rises, many will surely remain overpaid while tens of thousands of fellow citizens face bleak years on the dole.

The opposition to reform on the Left makes for common conservative cause on the Right with their rich brethren in one of the most powerful trade unions, the Irish Hospital Consultants Association, whose members are conveniently capitalists and socialists.

The General Election of 1977 had marked the entry to Irish national politics of Bertie Ahern, Mary Harney and Charlie McCreevy. In 1978, a public spending fuelled boom in Ireland resulted in a budget deficit of 17.6% of GDP (gross domestic product) - - a record for developed countries according to the International Monetary Fund (IMF), for the period 1970-2008.

The payback for reckless economic mismanagement was a decade of misery and pain and in 1997, on the three assuming power, as Taoiseach (Prime Minister), Tánaiste (Deputy Prime Minister) and Minister for Finance, the words of Frenchman Prince Talleyrand about the Royal Bourbons, were apposite: "They have learned nothing and forgotten nothing.”

On June 05, 1997, the Irish Independent famously ran its front page editorial titled - - "For years we have been bled white - now it's payback time" - - a day preceding the General Election.

Today, December 07, 2010, it's payback-payback time.

Finfacts Budget 2011 Page

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