THERE IS cross-party acceptance in the Dáil that the government has to make €4bn in savings in one of the most severe budgets in the state's history.
With little over a fortnight to go until finance minister Brian Lenihan wields the axe, nobody can argue he is in a most unenviable position.
So as he prepares his budget, the Sunday Tribune asked five people from various walks of Irish life to put themselves into Lenihan's shoes.
We challenged our 'Fantasy Finance Ministers' to come up with ways of making the necessary radical savings on budget day.
We asked economists of polar-opposite perspectives, two leading entrepreneurs and a woman with one of the most astute accountancy brains in the country to imagine walking down the blue carpet in the Dáil chamber on 9 December to deliver the mother of all budgets.
How would they make €4bn savings? What areas are ripe for pruning? And what, if any, areas of government expenditure are sacrosanct?
This year's government deficit will be approximately €22bn, despite substantial tax increases in last year's budget. Most of these tax increases have been counterproductive as tax receipts have fallen substantially. Savings of €4bn are hopelessly inadequate if this government is to prevent Ireland returning to a spiral of borrowing, excessive national debt, unemployment and emigration, which characterised the 1970s, '80s and early '90s, before the feckless ditherer Bertie Ahern came to power.
If I were finance minister I would try to identify €20bn savings in one year, and ask everyone to share in this short-term pain, for the near-term gain of returning Ireland's economy to budget surpluses and growth. This needs leadership and vision which would start by scrapping the useless social partnership. Here's how I would go about saving €20bn in 2010.
From 1 January 2010, I would close the more than 1,000 government quangos which currently exist, making all of the useless bureaucrats who populate them redundant and saving €8bn per annum.
I would require all public-sector employees (including the Dáil and Seanad) to work a minimum 40 hour week, with a maximum of 20 days annual leave. No public-sector basic pay would be cut, but all other allowances would be withdrawn. Public-sector pensions would all become defined contribution from 1 January 2010 as well. Any public-sector employee who doesn't like it, could resign, effective from 1 January and get a job in the private sector instead, where all of these terms are standard. Since this would improve productivity in the public sector by at least 20%, every fifth public servant would be made redundant and this would save €5bn.
I would implement the McCarthy report in full and save €5bn a year and reduce all social-welfare benefits, including children's allowance, by 20% saving €4bn a year.
I would also scrap the Dublin Airport Metro (saving €5bn), and sell all semi-state monopolies including ESB, Bord Na Mona, DAA, Iarnóid Eireann and Dublin Bus to the highest bidder, making a one-off saving of €10bn.
Since the above €32bn in recurring and one-off savings would eliminate government borrowings within one year, I would then reduce the tax rate for all people earning less than €70,000 per annum by at least 5%, to encourage/enable them to return to work and encourage employers to create more jobs in Ireland, rather than exporting them to lower-cost countries elsewhere.
I believe that €4bn is the minimum that should be taken out of the economy in 2009.
The introduction of water charges could raise at least €400m. Paying for water makes eminent sense, because anything we get for nothing, we do not respect.
A 20% cut in child-benefit payments, with some offsetting compensation for low-income families. The net gain from this could be as high as €400m. The taxation of benefits would make more sense, but would be difficult to implement and would take time to engineer. We do not have that time.
Increase the Corporation Tax rate to 15%. Such an increase could raise €600m. An increase in the corporation tax rate of this magnitude would be unlikely to do much damage to the Irish corporate base and would spread some of the pain of the fiscal adjustment between workers and the corporate world.
A 10% pay cut for earnings in excess of €50,000 in the public sector. This could save up to €500m in a full year. A 5% cut in the social-welfare bill could save €1bn.
An increase in duties on tobacco, alcohol and motor fuel will raise €600m. The rest could be made up by increasing the employee PRSI ceiling and the non-indexation of credits and bands. A carbon tax will raise at least €450m but it could be set much higher to raise up to €1bn.
Firstly, I would take a swipe at the Department of Agriculture as it spends €2bn a year. Farming has changed forever in recent years yet we are still spending colossal amounts of money on the department. We need to look at bodies like Teagasc and if there is no future in farming, why are we spending valuable government money on a dying industry?
As an entrepreneur, I believe that social-welfare payments are crazy. Giving €205 a week to an unemployed person is too high. An unemployed couple both getting €205 a week plus rent allowance and children's allowance could net €35,000 a year. The contrast to that is a working couple trying to struggle on meagre salaries and trying to pay their mortgage.
We need a radical cut in social-welfare payments and there should be a stiff penalty on social-welfare recipients found doing 'nixers'. I would have a gradual reduction in dole benefits over a period of time and I would parachute in a bonus payment of €500 if you leave the dole.
Elsewhere, there are 46,000 public servants earning over €100,000 and that costs €4.6bn a year. I would save half of that as there are too many higher-earning civil servants. We need a root-and-branch appraisal of what these people are doing. We should also focus on overtime payments, sick allowances and maternity payments which are all superior to the private sector.
I would close down Fás and save €1bn a year. That is what it was spending when we were at full employment. Fás is beyond repair. Training needs to be provided for the unemployed in a modern cost effective manner. Fás cannot reinvent itself to provide these services.
We also need to stimulate the economy by dropping the minimum wage, keeping income-tax levels the same to encourage people to stay in work, get the banks lending again and ignite small business. Just because we are going through a bad patch does not mean we should cut the Irish Aid budget and hurt people who do not even have food.
First of all, I recognise the extraordinarily difficult task Brian Lenihan has and I don't envy his position. It is extremely difficult to make €4bn cuts without affecting virtually everyone in the country in a negative way and as a politician, who is interested in getting re-elected, he won't want to annoy future voters. But it is very hard to see how he can avoid that. Equally, I would say that one of the heroes of political life in our lifetime would be Ray MacSharry who made the tough decisions when he had to and I think that should be a model for Lenihan to emulate.
In the short term, it may have adverse consequences for the current government but in the longer term they will be respected by the population if they stabilise the economy. My mother-in-law had a great saying "divide small, go over all" and it is hard to see how the €4bn cuts can be achieved without dividing small and going over all, with the best-off taking more of the cuts than the less well-off.
Ireland also needs to get its cost base down as we have lost our competitiveness and need to get that back.
The minister can either increase taxes or lower costs. My own preference is for lowering costs because having a lower tax base is part of a more competitive society.
Our low tax regime has attracted international investment so I wouldn't touch corporation tax. That is the number-one reason for multinational companies coming to Ireland.
In the public sector, where I work, we need to be more efficient. My colleague Colm McCarthy set out ways of making the public sector more efficient in his report and I think that should be implemented. We need more efficiency on the payroll side across the board in the public service. We have to do this for our children or we will land them with a millstone around their necks.
We should take the sharp shock of pain now rather than dragging it out over a longer period. Colm McCarthy has set out a very good template to follow.
Tax is already being borne by the better-off to a significantly higher proportion and I agree with that. If you further increase taxes or introduce a tax for the super rich, you make Ireland an unattractive place for wealthy people to work and that is not a good thing for everybody.
You want to attract people who will bring capital to Ireland and we want to make Ireland attractive for foreign investment. We have to be very careful not have the unintended consequences of taxing the super-rich.
I also have no doubt that there are opportunities for streamlining state agencies. This could be effective cost wise and make the agencies more efficient for doing business. At the moment it is difficult for people to know where to access state services and this will make it more consumer friendly.
The government should implement many of the 110 recommendations from the Commission on Taxation in regard to tax-avoidance expenditures. In doing this it could find at least €1bn in savings this year through removing avoidance mechanisms such as the tax emption for patent loyalties, the PRSI exemption for employee share options and many others.
There is still compelling evidence that income and wealth in Ireland is very concentrated among a relatively small number of individuals. In 2006, Bank of Ireland Asset Management estimated the new wealth, excluding the ownership of the family home, of the top 1% of Irish society at €70bn. Property has fallen by 40% from its peak and share prices have fallen significantly also. As a result, a conservative estimate of the current value of this net wealth is €40bn. A wealth tax of 2.5%, excluding the family home, would net the exchequer €1bn this year.
The introduction of the carbon tax would net the exchequer €500m next year. The ESRI analysis suggests that €20 a tonne be charged on CO2 emissions. Most of this would be levied indirectly on the consumer by an eight cent per litre increase in petrol, diesel and home heating oil. Industry would pay according to the weight of their emmissions.
The government has itself attempted to create a civil war between private and public-sector workers. The introduction of a new tax band with a top marginal rate of 54% for those earning over €100,000 would net €1bn for the exchequer next year. Those with the highest incomes from within both sectors would pay more, simply on the basis of income. This would counter the need to introduce what would be regressive taxes on low-paid workers. The figures illustrate that this course of action is best: there are 140,000 people earning over €100,000 in the state and nearly 50,000 of these earn between €150,000 and €1m. On the other end of the scale, 700,000 earn less than €20,000 with these included in the one million who earn less than €30,000.
As the Tasc report noted last week, the lower-income earners spend all their money in the economy while a significant proportion of the highest-income earners' money is saved or leaks out of the economy on luxury goods. Consequently, to tax the earners whose spending power is used to keep people in jobs would be perverse.