The Budget from hell

Shortly before the Minister for Finance, Brian Lenihan, entered the Dail to deliver his budget speech on April 7th I witnessed three dramas which more eloquently described the state of Irish society than did the budget debate.

In one, a man in a business suit standing beside me in a Dublin bar with three friends proffered a laser card to pay for three pints he had just ordered and when asked did he want cash back after paying for the pints replied “Yes – twenty euro”. The machine declined his card. In the second, a wealthy friend, who intended taking his wife to dinner was told by the exclusive restaurant which he had chosen that it was booked up for almost five weeks ahead. In the third, over the course of a single day, another friend, Brother Kevin, a Capuchin monk, and his helpers, dispensed several hundred free meals at his drop in centre at the friary in Dublin’s Church St, and in addition oversaw the distribution of over eight hundred food parcels.

What effect is Brian Lenihan’s budget likely to have on the actors in those three incidents?

The most likely answer is that Brother Kevin’s customers will increase, the restaurant’s will decrease and the man in the business suit will do what he can to forget pint drinking for the foreseeable future.

For, we are told, the budget, which was immediately dubbed “The Budget from Hell”, by Labour Party spokesperson, Joan Burton, is going to be followed in December by another budget, which will contain further taxes and levies including, it is speculated, a property and a carbon tax. Thereafter, be it in yearly instalments, or six monthly, as seems increasingly possible, over the course of the next three or four years, we are promised more blood, sweat and tears.

The number of billions which the Government has to make up for the shortfall in revenue, caused both by the global recession and by its own folly in putting all the nation’s eggs into the baskets of builders and developers, is like any other mountain. It gets bigger as it is approached .

In order to get over the mountain the government stated intent—made known more by leaks than by direct policy announcements— was to follow two tracks: Taxation and cutting public services. So far both paths have followed the well known route of services to single parents, women, children and the elderly first—for the chop. Though to be fair it has to be admitted that in their zeal to make sure that the misery is evenly spread the government has also done its best through its levies and the cutting of child benefits to ensure that life also becomes an appropriate hell for a middle income couple engaging in self-indulgent forms of activity such as paying a mortage and providing an education for their children. What all this has to do with the reduction of unemployment and the creation of jobs God only knows. However, in doing all this the Government faced both serious problems and a serious purpose, which, tragically, may not have been met.

The problems, apart from the fall in revenue, and the need to bring the public finances under control, included the fact that the growth in cross-border shopping has meant that it dared not touch assured revenue spinners of the past, “the old reliables” of alcohol and petrol. The serious purpose was to reassure foreign investors that Ireland Inc was worth investing in.

But, during the few minutes during which they remained open for business after the Minister for Finance had unveiled his budget strategy in the late afternoon of April 7th, European stock exchanges recorded heavy selling of Irish Government bonds. Was it that the traders wanted the cuts to be even deeper? The levies and taxes to go higher? Knowing such people, the answer is probably “yes”. But was there another reason? Regrettably it appears that there may well be: The toxic debts of the Irish banking system. The banking system, apart from running up astronomical debts also spawned a culture of greed and corruption, that seriously damaged Ireland’s reputation in the international financial community.

No one knows this better than Brian Lenihan, and in his budget speech he was, , not alone extraordinarily honest and outspoken on the issue (for a Fianna Fail minister) he also outlined very specific plans to bring in new personalities and structures. The new Irish financial regulator for example will be a person of international standing, chosen with the help of international expertise. But, in his speech, Lenihan also finally bit on the bullet of dealing with debt mountain which Irish bankers built up in their lendings to property developers and announced the setting up of an agency to take over the bad debts.

The idea is that over time the new agency would get value from them for the Irish tax-payer while allowing the thus relieved banks to get back to lending and stirring the stagnant economy back to normal healthy commercial life. However it was also revealed that the toxic debts could be as high as ninety billions. This figure is of course disputed by government sources who say that this is only the notional value of the assets against which money was lent and that in fact the debts will be less than 30% of the so called assets book value. Some put the true debt at around 20 millions—still a hell of a lot for a small nation.

But on top of this, for some time government agencies, such as the Department of Foreign Affairs, have been picking up disturbing rumours that there was a belief abroad that the Irish government’s controversial deposits guarantee scheme for the banks, introduced last year to stem a run on the banks, may also have included a guarantee of the banks’ debts. In some right wing financial bibles, such as the Financial Times and the Economist, the word about Ireland has not been kind recently, to say the least of it. The fact that Ireland had the temerity to introduce its own guarantee scheme without consulting London, or anyone else, went down badly. Not for the first time English financial figures muttered about the Irish behaving as though they were a sovereign nation. Now the announcement about taking over bank debts has awakened fears that Dublin has let itself in not merely for guarantees on deposits, but on debts as well. The miseries inflicted on the little people by the budget, could yet prove, not alone only a foretaste of things to come, but futile into the bargain.