If a puppet government continues to draw down free-range salaries, does that make it a kleptocracy?

By the end of today, we should have the remainder of the ministerial announcements on Budget 2012, though it might be another few weeks before we see precisely how some of the new measures will be implemented in detail. But we probably know enough already to be able to give a broad assessment of Budget 2012.

First up, the economics – we all know the story by now. We had an economic shock in 2007/8 when our property and banking sectors failed. As a country, that left us with a tax-take far below state spending which was almost overnight left high-and-dry at Celtic Tiger era levels. And it is taking us eight years from 2008-2015 to get back to a state of equilibrium where our tax-take roughly equals our spending. Nothing complicated about that at all, and it could have been much worse – nobody died, it’s economics and we’re all determined to get back to a position where we pay our own way in the world. For our society, it would be nice if we had better closure on the reasons for the collapse in 2007/8 but economically, it’s happened and we need to adjust.

So it was agreed by most yesterday that Budget 2012 needed to be tough. Certainly in the Dail, there was near unanimous agreement to the size of the adjustment needed to move us along the path to equilibrium in 2015. That means that €3.8bn will need to be found in 2012 in cuts and extra taxes. Some people argue for a bigger upfront adjustment, some point out that if the ESRI’s projections on economic growth, published last week turn out to be accurate then the adjustment should have been over €4bn, others argue for adjustments over a longer period, but €3.8bn was in the main accepted by all.

What Budget 2012 hasn’t addressed is:

Unsustainable debt. The debate continues to simmer about whether or not Ireland’s sovereign debt and the debt that the Government is taking on, to bailout the banks is sustainable. The official projections are that debt:GDP will peak at under 120% in 2013 which is in the same ballpark as Italy’s debt, far better than Greece’s position which is projected to rocket close to 200%. Japan famously also nurses a 200% debt:GDP. The recent EU deals have anticipated some default on Greece’s debt to allow that country’s debt:GDP to reach 120% in 2020. Ireland historically had a debt:GDP of nearly 120% in 1987 and recovered from that, so that by 2007 our debt:GDP was only 25%. So although the debt:GDP is very high, it remains arguable whether or not it is sustainable. The view on here is that it is not sustainable, that we don’t have the prospects or potential that we had after 1987, that the debt:GNP which will rise to over 140% in 2013 is too much for society to bear and that there will need to be default on bank bailout debt, or eventually our sovereign debt will be placed in jeopardy, or we will end up with an unacceptable society. The sustainability position is arguable, but it is a fact that the Budget 2012 does not set out measures to change our debt in any new way.

Stimulus: Italy approved an austerity budget last weekend which will see a €30bn gross adjustment to the Italian economy in 2012, but importantly there is €10bn of a stimulus to boost Italy’s sluggish growth. There is practically no stimulus in Budget 2012. Capital expenditure is being cut which will eliminate jobs. Where might we find the money for a stimulus? It has been suggested the private pension industry might be persuaded to invest more in Ireland or that what remains as the national strategic reserve, the National Pension Reserve Fund, might be deployed – both sources have their difficulties; the pension industry is still smarting at the levy and the national reserve is maintained so we don’t end up completely broke. A suggestion on here is that NAMA’s €1bn+ cash mountain be invested in schemes which will pay NAMA more than the 1.7% interest per annum which NAMA pays the holders of its bonds.

Taxing wealth and high incomes. Since most people in this country are not wealthy or on high incomes, it seems not only fair to get those who can most afford it, to pay most, but it would also unburden most of us from the cuts and new taxes. But remember the reason this doesn’t happen naturally is that the super-wealthy are also super-mobile and London, Monaco, Switzerland, Gibraltar, the Isle of Man and the Channel Islands are only a short hop away. And higher taxes on the wealthy in any country tend to repel the wealthy and deter investment. That’s why it doesn’t happen – that’s not a left-wing or right-wing claim, that’s the reality. Having said that, in France, the wealthy (or at least what seemed like a representative sample of the wealthy) sought out increased taxation on their incomes in order to help the nation restore its finance; it is to be a temporary increase with the 3% levy on salaries over €500,000 set to expire at the end of 2013. Technocractic Italy too has imposed wealth taxes in its drive to boost growth and cut its own deficit.  Neither France nor Italy could be described as left-wing or socialist. In Ireland’s case, there is room for a time-limited levy on super-wealthy salaries.

Competitiveness: Ireland is making very slow progress in reforming is medical and legal professions so that prices can be brought down to European averages. Although a term of the Troika agreement, the Troika doesn’t seem very interested in this area as long as the deficit is being reduced. According to Eurostat, our consumer goods and services remain 18% higher than the EU average whilst our per capita GNP is just 3% higher than average. The National Consumer Agency was to be merged with the Competition Authority to save costs and deliver a more competitive environment. Practically no progress seems to have been made.

The Croke Park Agreement was also ignored in Budget 2012, as it is being deemed to deliver the savings originally envisaged.

But beyond the economics of the Budget in general, what sticks out like a sore thumb is the maintenance of what appear to be outrageous political salaries.

How on earth can Ireland justify paying its politicians the same as ts neighbour; a neighbouring country whose GDP is 10 times that of ours, whose population is 13 times that of ours, which maintains a sub-Superpower military, which charts its own monetary and fiscal course as it has control over its currency and its budgets; how on earth could we justify paying the same, but Ireland actually pays its politicians more! In the case of An Taoiseach, 20% more. There will be non-salary benefits which complicate any comparison but as far as I can tell, even these non-salary benefits tend to be at higher levels in Ireland.

The Government constantly complains that it is straitjacketed by the Troika Memorandum of Understanding, and that refrain has become the fundamental justification for austerity. Fair enough, but if our Government has effectively become, what Minister Noonan referred to in his response to last year’s Budget in December 2010 as, a “puppet government” then surely puppet politicians should get paid less than those with traditional freedom of action? What household will pay MORE for a confined turkey than a free-range turkey this Christmas? We don’t expect our own turkeys to vote for Christmas but when they consider it necessary to broadcast State of the Nation speeches in which they commit to “do all we can to protect the most vulnerable in our communities – our children, the sick, and the elderly”, surely even they cannot defend salaries so out of line with our closest neighbour, when they then impose cuts to services/benefits for “children, the sick and the elderly”.

Okay, even at a time when cuts are being foisted on the most vulnerable in society, taking down a salary which is 20% higher than your neighbour’s mightn’t fit the traditional description of a kleptocracy, and to be clear, there’s no specific accusation here of criminality or law-breaking, but if not kleptocracy in the traditional sense, it certainly appears greedy and arrogant. And at a time when the nation cries out for leadership, it diminishes the offices of our leaders. Ireland is practically unique in the world for failing to grow its population at home and the spectre of emigration has returned with the economic downturn – these are indeed difficult times, and enlightened leadership that is sensitive to the plight of the nation generally is needed more than ever.

Finally, one of the features of the bilateral bailout loan agreement that Ireland has with the UK, is that the UK, like the Troika, is entitled to send its own mission to examine budgets, and to audit figures and generally interfere in the economic governance of the State. And if you had just agreed to loan €4bn to someone, you’d want oversight as well, so we can hardly blame our neighbours for ensuring theoretical oversight provisions are contained in the agreement. But, might the UK does us all a favour and given its recent lending of the first tranche of €500m –odd, might it turn up in force with the Troika missionaries in January 2012, and give an honest-friend assessment of political salaries in this country?