LISTENING to much of the debate on the economy and the public finances in recent days and weeks calls to mind Edmund Burke's line that those who don't know history are destined to repeat it.

A lot of the same arguments that are being made by the trade union movement and others about tackling the current crisis ignore the lessons of the 1980s when a succession of governments spent a decade dithering and foostering before serious action was taken to address the disastrous state of the public finances.

The number one lesson from the crisis of the 1980s was that pain postponed was pain multiplied. The second lesson was that if tax rates are consistently increased, at some point – whether it is because the increases stunt economic activity or there is greater incentive to evade tax – diminishing marginal returns set in.

Successive governments in the 1980s failed to address the soaring budget deficit and national debt. Tough decisions on spending cuts were shirked as annual tax increases became the norm. The result was economic stagnation and, as we now know, widespread tax evasion at all levels of society.

When the incoming minority Fianna Fáil government of 1987 – helped, it should be said, by Alan Dukes' Tallaght Strategy – decided to deliver the harsh medicine, the impact was almost instantaneous. Confidence soared, the economy defied economic logic by growing and the public finances started to stabilise to the point that seven years later the country was reporting its first current budget deficit in over two decades. Employment growth was slower to come. But there is no question that the seeds of the Celtic Tiger boom were sown in that two-year period between 1987 and 1989.

The same might one day be said about the 2009-2011 period but only if the bullet is bitten with the same intensity as it was 20 years ago.

There is no shortage of seductive arguments around at the moment as to how the huge crisis in the public finances can be addressed.

The unions say the whole process should be spread out over more years. Other campaigners have said top earners should be targeted, both in terms of pay cuts and higher taxes; that waste in public spending should be tackled and other forms of generating income, such as privatisation, should be looked at.

The unions are simply wrong when it claims there is scope for dealing with the budgetary crisis over a longer period. There isn't. Even leaving aside the hugely damaging signal that would be sent out to the EU and the international financial markets on which we will so heavily rely for borrowing money, there is the issue of the soaring national debt. Two weeks ago, ministers were briefed by finance minister Brian Lenihan that by 2013, even with the proposed cutbacks, 20% of tax revenue will go on just paying the interest due on the national debt. Two years ago, the corresponding figure was 4.5%.

If the government doesn't take the tough decisions now, it will end up having to make even bigger cutbacks in four or five years' time. And in the meantime – if the 1980s are anything to go by – the economy will simply stagnate.

The idea out there that the problem can be solved by taxing the rich or cutting waste in the public sector also needs to be addressed. The rich need to pay their fair share, no question about it. But whatever money is raised will not be enough to put a serious dent in the €20bn-plus hole in the public finances. The same goes for cutting waste in the public sector. Of course, every cent of taxpayers' money has to be carefully spent, but the report of An Bord Snip Nua made it clear that while there is scope for reducing expenditure, there is precious little low-lying fruit bearing billions of euro.

Using one-off windfall receipts from privatisation to prop up current spending, as has been suggested, would fall into the same trap of a couple of years back when huge spending increases were sanctioned on the back of tax revenues that were hugely dependent on the booming housing market. Our level of spending has to be sustainable in the medium term.

And that, unfortunately, means €4bn cutbacks in spending next year and the year after. With nearly two-thirds of spending going on social welfare and public sector pay, it is unavoidable that the bulk of the cutbacks will fall in these areas. The unions are quite right to point out that public servants didn't cause the economic crisis.

But it is also true that the cumulative pay increases awarded to public servants over the past 10 years were unaffordable – a fact that was camouflaged by bubble property tax revenues.

There is scope within the budget to attempt to alleviate, in so far as is possible, the impact on the less well-off. Overtime and inefficiencies in the public sector must be targeted first and when it comes to social welfare, the axe must first fall on the better off – for example, high earners in receipt of the same level of child benefit as the poorest parents.

However, the reality is there is no painless way of doing what has to be done. It is going to be very, very difficult on those affected. But there is simply no choice in the matter and beware anyone who says otherwise.

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