Moral overload?

Slí Eile: No sooner was the ink dry on the Public Service Agreement (2010-2014) than the next news story broke on - NAMA. It just never dies down. We have now moved from dealing in billions to tens of billions. In Weimar Republic style numbers inflation we are moving into funny money territory. Except it is not funny for anyone. It is staggering. The figures dwarf any possible savings in public sector pay bill by a large multiple that the financial implications of the new deal on the public service (if is passed by union members) pale into insignificance. The negotiators deserve credit for their efforts. But, there is one snag - its paragraph 28 on page 9 - the very last sentence in the main document. It reads:

The implementation of this Agreement is subject to no currently unforeseen budgetary deterioration.

O dear. I think we might have just had an unforeseen budgetary deterioration over the six o clock news this evening. Even Minister Lenihan admits that this has serious implications for taxpayers (contrary to the McCarthyite dictum that NAMA and the fiscal crisis have nothing to do with each other). NAMA has everything to do with the crisis because it is going to magnify the mountain of debt, contraction and cost-cutting imposed by a general slump. With GNP falling at an annual rate of over 12%, tax receipts under-shooting for most months there is every prospect of an early budget or an early election or an early bank collapse or all three. Either we keep on feeding the junkie called Anglo or we allow the junkie to die. Pretty stark. But, the problem right now for Government is whether it can deliver on all of its promises to:

• not cut public sector pay before 2014
• reduce the General Government Deficit to 3% of GDP by 2014
• keep the Anglo junkie fed with €10bn every few months (does anyone believe that another shot will not be demanded - we are in free fall)
• and keep the economy from contracting by another 10-12% this year (the forecast for a decline of 3% but that remains to be seen).

And what of social welfare recipients? Any guarantee that they will not see another cut in rates before the end of this year? After all, with politically bought commitments on school class size, third level fees, public sector pay the room for manoeuvre is very, very limited especially if the Government is writing promissory notes fast to impose a haircut on the young generation by way of unemployment, public service cuts, emigration and deficit traps. It can always claim TINA (there is no alternative repeated daily 20 times until patient is dazed) having fixed spending options on public sector pay, education class size and under squeeze from NAMA and bank recapitalisations.

Worryingly, the Labour Party have pointed out (Strategic Investment Bank) that:

At the same time, Ireland’s fiscal position and the restrictions imposed by the
Stability and Growth Pact (SGP) represent a major constraint. There is little prospect that the level of investment necessary to improve our infrastructure can take place in the next decade given the current state of the public finances. And even without the fiscal crisis, the SGP, which includes public capital investment as part of its limit for the budget deficit, would restrict the State from making the necessary investments.

Where does that leave us if people are saying that we are under siege on all sides and to such an extent that we cannot invest our way out of this crisis along with other policy measures?

Posted in: Fiscal policy • Politics

Tagged with: Public Service Agreement • NAMA