The scale of the challenge facing the government in bridging the gap between what it's spending and what it's earning – a €20bn deficit in 2009 alone – can't be overstated. Just ask the International Monetary Fund (IMF): "The Irish economy is in the midst of an unprecedented economic correction. The stress exceeds that being faced currently by any other advanced economy and matches episodes of the most severe economic distress in post-World War II history."
When described in these sobering tones, the current generation of Irish politicans could be forgiven if they simply stepped aside, accepted defeat and allowed an outside force or agency to deal with the problems in their place. Maybe that outside body would be the IMF, who knows.
So far it hasn't come to that and the government plans to restore order to the public finances between now and 2013 via a fiscal consolidation that is going to heap pain on just about every citizen in the Republic.
Tánaiste Mary Coughlan last week insisted the way to restore order was not necessarily by adopting Colm McCarthy's An Bord Snip report but Coughlan and Co will have to adopt some formula of public expenditure reductions, even if she and other ministers are squeamish about the blunt certainties contained in McCarthy's work.
The government has indicated the fiscal consolidation from here on in will be undertaken mainly on the spending side, rather than on the tax side (with the exception of a carbon tax and some smaller stealth taxes). If that's truly the case, spending reductions will have to be on a scale never undertaken before in this state. This means Brian Lenihan and Brian Cowen will have to go hunting for big game, items that will get them to their target for 2010, which is €4bn of spending reductions – at least that is what they've told the EU Commission.
There will be huge crippling social consequences from their actions, but, sifting through the current structure of Ireland's public finances, it's easy to see why health and social welfare will be in the firing line. Of the €56.6bn to be spent in 2009, €21bn is accounted for by social welfare, €19.8bn is earmarked for pay and pensions for public servants, with the remainder coming from every other government programme.
The centrality of social welfare and health was recently illustrated by McCarthy's report: if he had ignored cuts to the budgets of health, social welfare and education, his report would have come up with only €1.4bn of potential savings, not the €5.3bn he eventually accrued.
Any attempt to come up with €4bn of spending reductions will have to deal with two realities. One is that most of the cuts will fall on the current side with the government determined to preserve capital spending, which enhances a country's long-term productivity, aids an eventual recovery and acts in its own way as a form of fiscal stimulus.
The second reality is that if the government wants to achieve big spending curbs, child benefit is the quickest route to its fiscal target, although this whole area is suffused with huge political danger, particularly considering the costs of childcare in Ireland compared to other jurisdictions.
The payment of non-means tested child-benefit payments currently costs the state €2.5bn, but the government would never consider ditching the payment entirely, so that level of saving is not up for grabs. What is up for discussion, post-Lisbon of course, is either taxing the payment, means testing it or simply paying out a lot less money.
The latter option of paying less would generate savings of only €513m; taxing of the payment could bring in more depending on the rate; while means testing, depending on the thresholds, could bring in some more.
The best the government can hope for on child benefit is clawing back a certain level of revenue. As a result it will need a fatter, juicier target and that is likely to be the health service, where the HSE sticks out like a sore budgetary thumb.
With an annual gross budget of €15bn, spending by the HSE, which operates the health system, is equivalent to 25% of the entire spending envelope of the Irish state. The Department of Health, where policy for the system originates, is a much smaller specimen with an annual budget of €947m, thereby reducing its ability to deliver transformational savings.
The government's plan still envisages an additional €1.75bn in tax hikes in 2010, mainly from carbon tax and ending certain reliefs. However this position is being questioned by economists, including Rossa White of Davy.
"It is now unrealistic to increase taxes by another €1.75bn. The property tax will not be ready in time, as it requires a valuation database.
"We do not understand the argument that it is politically 'toxic'. Taxpayers should realise that if the government does not find €1bn from property and is determined to hike by €1.75bn overall, then €1bn will inevitably be hammered on income instead,'' warns White.
Either way tax increases, aside from carbon and reliefs, seem to be off the agenda, so attention is moving elsewhere.
Social welfare is the other area where savings are at least available, whatever about the arguments over social justice and equity.
The Department of Finance, the Sunday Tribune understands, is already looking at a 5% reduction across the board in social welfare payments and benefits. The government will point to Central Statistics Office (CSO) data to support such a change. The CSO data shows the price of goods and services fell by almost 6% in August compared to the previous year.
Economists argue those getting social welfare increases last October of 3% were effectively receiving an increase in their real purchasing power. Unfortunately most receipients are not interested in the purchasing power of payments, just their nominal value. Either way if the government can manage to lop 5% of the overall social welfare budget, it would yield savings of €850m in a full year, no doubt a tempting target for a hardpressed minister who is trying display credibility to the outside investment community.
The McCarthy report is packed with other ideas about reducing the Irish deficit as a percentage of GDP, but most of them yield tiny sums, and that is after taking a bus-load of political flak. For example, cuts in a variety of programmes at the Department of Agriculture suggested by McCarthy would deliver only €305m of a booster, despite the indignation among farmers about their incomes disppearing.
The minister may also be tempted to lock horns once more with public sector workers, despite imposing a pension levy on them already. A 5% across-the-board cut in public sector pay would yield savings of €1bn in a full year; a 10% cut would deliver €2bn.
Such a move is likely to meet huge resistance from public sector unions, whose members already feel victimised. Equally parents are unlikely to be queuing up for a child benefit payment cut.
As one economist said last week, it's time to test people's pain threholds.