BRIAN Cowen and Brian Lenihan insist there is no alternative to the €4bn in cutbacks and their plan for getting the public finances back in order by 2013. Most economists agree. But Ictu is adamant that there is a "better fairer way" for national recovery. Who is right? Political Editor Shane Coleman analyses congress's 10-point plan and assesses its merits.
1. Extending the recovery period
Central to Ictu's plan is its argument that the recovery period should be extended from 2013 to 2017 to "minimise the burden of cuts and prevent the complete collapse of our vital services and our economy". It argues that Ireland's relatively low debt-to-GDP ratio allows room for flexibility to "temporarily" increase borrowing. Ictu says that relaxing the criteria will not damage confidence in Ireland abroad and notes that other countries are in breach of the stability and growth pact rules.
Verdict: The idea of putting off the pain is highly seductive, but it ignores the signal that it would be sending out to the international markets. Inevitably, the perception would be that Ireland was not prepared to do the hard things and was going for the soft option. The immediate impact of that would be an increase in the rate at which Ireland borrows money (we are already paying 1.5 percentage points more than the Germans). It is true that Ireland's debt-to-GDP ratio is relatively low, but if we are borrowing in the region of €26bn every year, that will not be long changing. A back-of-the-envelope calculation suggests that putting tough decisions on the long finger could add as much as €45bn to the national debt by 2017 and would leave the country with a debt-GDP ratio of over 90%, instead of stabilising at just over 70% with the government's plan. That means a much higher percentage of tax revenue going on interest repayments.
2. Tackling the jobs crisis
Ictu wants a €1bn fund to "promote the type of job sharing initiative pioneered successfully in Germany, other EU countries and even Singapore". It says the model involves an intervention by government, not to pay social welfare, but to "fill the gap" with education and training where trading conditions force a company to reduce production.
Verdict: There are two different views on this. One is that the money simply isn't there given the fiscal crisis enveloping the state. Without tackling the public finances, the uncertainty will create greater unemployment because it delays further any recovery in consumer sentiment, as happened in the 1980s. There is also a view that the merit of these schemes is questionable on the basis that the state is subsidising companies to do something they were going to do anyway. There are also fears that the scheme would be open to abuse.
The counter argument is that the option is far preferable to having people on the dole, and less expensive.
The optimal solution probably lies somewhere in the middle of the two views. It is simply unrealistic to see how the government could come up with €1bn or anything close to that figure for a jobs fund. Some form of state-subsidised training and job retention fund is likely to be announced in the budget, but the sums involved will be well short of €1bn.
3. Protecting incomes
Ictu says that cutting incomes in a recession means less spending and more jobs lost, potentially turning a recession into a depression. It says that while a case can be made "in the current circumstances" for wage moderation, competitiveness is affected much more by issues such as energy prices, quality of infrastructure and the absence of a functioning banking system.
Verdict: Ictu has a point here. Cutting incomes will depress demand and spending but arguing against such measures ignores the massive structural problem that currently exists in the Irish economy. Huge numbers of jobs have been lost in the construction sector, par-ticularly among males under 35. And regardless of any recovery, that sector is not going to bounce back. That means that if we want to get those men back into the workforce, exporting firms are going to have to shoulder much of the responsibility. And that means pricing ourselves down inter-nationally. Without being able to devalue, wage cuts are unavoidable to increase our competitiveness and if the economy and employment is to recover. As regards public-sector jobs, the reality is that with almost a third of current expenditure going on public-sector pay, cuts in that bill are inevitable.
4. Stop social welfare cuts
It is wrong, Ictu states, that "people on social welfare should carry the cost of top bankers' reckless behaviour and government mistakes", adding: "we must protect the most vulnerable".
Verdict: Nobody disagrees with the need to protect the most vulnerable, but unfortunately, with a budget deficit of well in excess of €20bn, matters are not so straightforward. More than one third of government spending goes on social welfare, so leaving this area of spending untouched is simply not an option. To do so would simply store up massive problems that would involve the "most vulnerable" being more harshly hit down the line. And, if as the unions are arguing, neither social welfare nor public-sector pay should be cut (representing more than two thirds of total spending), where is the state going to get the necessary savings from? It also must be pointed out that not all social welfare recipients are vulnerable – far from it. Child benefit, for example, goes to every child in the country regardless of income. The same holds for the state pension.
5. Safeguard services
More people come to rely on social services in a recession, Ictu says. Imposing cuts now could damage our vital services.
Verdict: Is it remotely tenable for the unions to be arguing against a cut in services while at the same time saying that public sector wages must not be reduced? If there isn't a pay cut then that must mean a reduction in numbers, which will lead to reduced services. If "Laura needs her public services", as the Impact advertising campaign says, then it would seem pay cuts cannot be avoided.
6. Tax the rich
"Our tax system is unfair and millionaires can legally pay far less than working people. It needs to be rebuilt and the wealthy need to pay their share. Where did the tens of billions that were made in the boom go? They didn't lose it all on the stockmarket.
Verdict: This is a hugely popular argument but how valid is it? There is certainly a case for closing off any remaining tax shelters. But the reality is that half of all income tax comes from the top 4% of earners. Meanwhile, half of all workers pay no income tax whatsoever, something that doesn't happen anywhere else in Europe. The other question is what represents being rich? Does it include the married couple of, say, a prison officer and his ward sister wife, who with overtime are earning €150,000? And, aside from a desire to give the wealthy a lash, what impact would a new higher rate of tax have economically? It is generally accepted that Ireland needs to reposition itself as a smart economy. Would that be possible if we taxed mobile professionals in a far more penal manner than in rival markets such as the UK and the US? The Scandinavian example is always cited by exponents of high tax rates but we don't compete with Scandinavian countries for mobile skilled workers – we compete with the UK, the US and Australia and the marginal rate of tax is already lower in these countries.
7. Protecting people's homes
Ictu wants specific measures brought in to protect homeowners, including a three-year period for those in a situation of severe indebtedness to sort out their problems.
Verdict: Nobody wants to see any home repossessed but there are question marks as to whether amnesties will only increase problems for mortgage holders. The reason why mortgage rates are lower than general interest rates is because the house is there as collateral. If that collateral is diluted, it makes it more risky for banks to lend and the result will be higher interest rates as banks will find it more difficult to source finance on the money markets.
8. Workplace rights
The recession "cannot become an excuse to strip away people's rights" and the government must act on their commitments in this area, says Ictu.
Verdict: Unions wouldn't be doing their job if they weren't emphasising this area, but its importance to a national recovery is a moot point.
9. Reform the banks
Ictu says we must ensure the banks do not scapegoat their employees and their structures are reformed to prevent a similar crisis ever happening again.
Verdict: No argument here.
10. Protecting pensions
"Many working people face old-age poverty because pension schemes have collapsed, while others have no pension coverage. We need a new National Pension System."
Verdict: An important and obvious aspiration – the difficulty is doing this in a way the state can afford.