Budget cannot be viewed as fair

Last night, I had an opportunity to speak in the Seanad in reaction to Budget 2010. Below is my own contribution.

I am grateful to Senator Boyle for his acknowledgement, which members of the Government find it difficult to make, that at least part of the deficit problem the Government, and by extension the people, must deal with is attributable to what has occurred in the banks. That is unquestionably the case. From time to time and mainly in the context of NAMA, Ministers attempt to suggest, in a roundabout fashion, that the NAMA borrowings are not real money or real borrowing. However, the borrowings are real and will constitute an exposure for the people in respect of the bonds that banks will be given in exchange for loans.

More immediately, the deficit has increased since September when the Department of Finance acknowledged that it amounted to just over €20 billion compared with €9.4 billion at the end of September in the previous year. The statement reads: “The year-on-year deterioration in the deficit of some €10.8 billion is primarily explained by a decline in tax receipts of €4.8 billion, the €4 billion payment to Anglo Irish Bank and €1.7 billion in respect of the frontloading of the annual contribution to the National Pensions Reserve Fund.” It is no use that Government spokespersons attempt to convey the impression that the issue of the banks and the extraordinary exposure of the taxpayer in that respect is off line and has nothing to do with the budgetary crisis. These matters are connected in a substantial way, meaning that there has been an element of dishonesty in the remarks of some Government spokespersons.

Senator Boyle, similar to Senator MacSharry, stated that these budget decisions would have been made by any political party in power, but I do not accept that the decision to reduce the pay of public servants earning €30,000 per annum would have been made by any party in government, certainly not mine. I do not accept that the decision to cut child benefit or social welfare would have been made by any party in government, as was suggested by Senator Boyle more in hope than in a belief that it was the case.

This is about politics. Perhaps I am approaching politics from a slightly different perspective than Senator MacSharry who stated that the issue has gone way beyond politics, which is an extraordinary phrase. The current situation signals the arrival of politics, not its departure. I do not know what my colleagues understand or believe politics to be, but it is my belief that politics is about making choices and deciding, for example, whether one agrees, as parties did in recent weeks, on the appropriateness of reducing the 2010 deficit by €4 billion. Politics is about where to make the savings and what choices to make, be it on cutting public expenditure and, if so, where, or on increasing taxes and, if so, where. People should not be afraid of this. When there is an argument on these issues, people refer to it as being “all politics”. In my respectful submission, the problem with the current system is that there is not enough politics or calm, measured and careful debate, contest and disagreement on issues. I am not calling for disagreement for its own sake, but the only way to determine what will next occur in any society, particularly one in paralysis and crisis like ours – I am referring to wider society, not just the economy – is to have a free flow of debate and interaction. This is called politics. I am not looking to get away from this fact. Rather, I am looking to embrace it.

The Minister for the Environment, Heritage and Local Government, the leader of the Green Party, indicated his belief that the budget was fair, “by and large”. How he could possibly view it as being fair is beyond me. Most of those on the Government side who have spoken about it have called it difficult, draconian and so on. They could not have done otherwise. However, few have been so bold as to claim it is fair. It is anything but a fair budget. Cutting the weekly earnings of people who are on as low an income as €30,000 per annum is not only unprecedented and extraordinary, it is unacceptable in a country which in relative terms, is quite wealthy. There is no question that ours is a country in which there are deep inequalities. Many people earn considerable sums and could be called upon to pay more in the current circumstances. From the many leaks in recent weeks, I understood the Green Party was pressing in Cabinet for a robust attempt to spread the burden more fairly across all earners, but there has been no such attempt.

The Labour Party advocated something that I will repeat now. Ours is a relatively low-tax economy. According to OECD figures, we are relatively undertaxed. No one takes pleasure in standing up and asking for taxes to be raised. No one wants to raise or pay increased taxes. However, we need to be able to have an adult debate on what level and quality of public services we want and on how to pay for them. We seem unable to allow such a debate to be held. Perhaps holding it now would be difficult, as this is not an ideal time to increase taxes. In the past ten or 12 years, the so-called low-tax economy became something of a sole objective of economic policy. In many ways, it has left us where we are. We could have re-ordered our taxation system and widened its base when the opportunity presented, but we did not.

The carbon tax is the budget’s only taxation measure, of which I am in favour, but what are our priorities in a crisis? This tax is a priority, but it would not be at the top of my list of priorities. I make this distinction because one should consider the budget’s other provisions. Take the decisions on stringent cuts in respect of low-paid workers, child benefit and social welfare as examples. At the same time, a report of the Commission on Taxation has been available to the Government since the summer. Again and again, we were told that it would form the basis for budgetary decision making, but it has been cast aside with suggestions that some of its elements will be introduced at some future stage. Having received the report, why could the Government not have got down to work on the proposed measures in late summer and autumn?

Tax reliefs and tax breaks are endemic in our taxation code. Recently, I read that the average level of tax breaks across Europe would, in proportion to our economy’s size, equate to approximately €2.2 billion or €2.3 billion. However, our tax breaks amount to approximately €7 billion or €7.5 billion. These issues could have been examined, as advocated by the Labour Party previously. Particularly in circumstances where people’s pay, basic social welfare and child benefit are being cut, it is not good enough to claim that one will get around to tax breaks next year.

Regarding pay, it is worth revisiting what really happened last week. Yesterday the Minister for Finance stated that, although there had been negotiations, “regrettably, a deal was not possible”. We know that is not true and that a deal could have been reached last week. Instead of reaching agreement with the trade unions, elements within the Government led by the Minister, wanted to drive down wages across the economy, sending the signal, initially to the public sector, that wages needed to be reduced. We know the argument, although I would prefer to hear people state it more honestly, because we cannot devalue our currency, we must, therefore, reduce wages in some other manner. Why can that not be said? It is clearly what the Minister thinks and, let it be said, intends to do. We are reducing pay in the public sector in order that we can make it easier for the private sector and assist it to do the same. That is what happened last week. I do not believe the line that the talks broke down because the figures did not add up to the required €1.3 billion. As described, we were gaining on the figure of €1.3 billion. Yesterday the Minister announced that the savings in pay amounted to approximately €1 billion. The figures were adding up, but there was another agenda.