Economic Shock Therapy - Irish Style

The publication of today's report by the 'Special Group on Public Service Numbers and Expenditure' was always going to herald painful times. The Republic of Ireland is caught in the midst of a severe economic 'correction' unparalleled in the history of the state. Given the overwhelming hegemony of free-market ideology across the political spectrum, stretching from Sinn Féin on the 'left' to Fine Gael on the right the only way out is to cut back public services and/or raise taxation.

Yet, the breadth and the depth to which the report of 'An Bord Snip Nua' as it has become known (recalling an earlier anti-working class bureaucratic onslaught of 1987 vintage under the original 'An Bord Snip') will surprise even the most pessimistic of commentators. The two volumes (over 300 pages) of the group's report catalogue an unrelenting and seemingly universal series of cut-backs, increased charges and restructuring which will do little to contribute to the gaping budget deficit yet have immediate and horrendous consequences right across the working-class and specifically on those already suffering the pain of the recession.

This is the first of two posts by Socialism or Barbarism which will review the findings published by the Department of Finance today. We do so without apology. If this report is implemented by Government it will set the scene for the coming social struggles in the months and years ahead. For the almost unending stream of cuts identified will undoubtedly provoke a reaction from wider Irish society, in particular, the trade unions, equality campaigners, regional interests and special interest groups - all of whom will bear the brunt of this most serious public sector restructuring.

A Right-wing Membership for a Right-wing Agenda

The group was established by Finance Minister, Brian Lenihan, in November 2008 "to examine the current expenditure programmes in each Government Department and to make recommendations for reducing public service numbers". The explicit aim was to enable a "return to sustainable public finances". The group which has identified cuts amounting to €5.3 billion per annum to be implemented over a two-year period ending 2011.

Despite the alleged commitment of the Dublin Government to social partnership, there was no trade union representation on this body. Instead, the membership drew together right-wing academics, public sector management, private sector representatives, the Central Bank and the ubiquitous PriceWatershouseCoopers consultancy.

As is usual for any attack on public services, the body's remit was dressed up by Government as 'rationalising and streamlining delivery of public services in the
consumers’ interest'. Yet the overriding aim to "review the scope for reducing or discontinuing Expenditure Programmes with a view to eliminating the current budget deficit by 2011" clearly took precedence over any mere efficiency gains. This report represents the first step in a generalised downgrading of social provisions for the Irish populace and will clearly impact most severely on the poorest sections of the community.

The Context

We have previously highlighted the scale of the economic crisis afflicting the Irish Republic but it is important before we consider the range and extent of the cutbacks that we remember two issues.

The first is that the government allowed the boom to extend with little or no concern so long as the property developers, financiers, consultants and bankers were reaping the rewards of ever extending financial profligacy. Despite the media portraying this crisis as unforeseen, many on the left(and a few others) have continuously highlighted the unsustainable nature of the expansion, the increasing inequality it generated and the failure to extend growth beyond a few key sectors which culminated in such dependency on a ballooning construction and property sector for over one quarter of all fiscal receipts. This failure was characteristic of the laissez-faire ideology that underpinned the Celtic Tiger. The Government's role was 'hands-off' stimulation through a predatory, low corporation tax rate and its parallel failure to implement anything near a planned economic development strategy.

The second point is that the Government has saw no alternative but bailing out banks from their potentially massive liabilities built up over the past few years. Virtually every Irish bank is considered to be insolvent as they have been left holding hugely depreciated assets against loanbooks provided to bankrupted property developers.

While the profits were rolling in they were channelled into the hands of a powerful elite. Yet today, in both cases, it is the working-class, the class who gained least from the Celtic Tiger era, who have to pay the cost. This should not be surprising. Capitalism only enforces the 'free' market when it suits it. The cardinal rule is that wealth is privatised, debt is socialised.

According to the Government, even notwithstanding the potentially immense debt falling due as a result of the bank bailout, the fiscal deficit was set to rise to almost 16% in 2009 before the cutbacks enforced in emergency measures and budgets adopted over the past year. Even with these already stringent measures, which as we have described previously have been focussed on increasing taxes and reducing public sector pay, the deficit is set to end up at 10% which is many multiples the Eurozone target of 3%.

The report details how the €5 billion raised by these "cost-saving" measures have been more than offset by increasing social welfare payments and the rising cost of maintaining public sector debt. This has resulted in an overall increase in public expenditure to €62 billion in 2009 (€5 billion higher than the 2008 figure). Meanwhile fiscal receipts have collapsed to €51 billion leaving a deficit of €11 billion. When the capital budget and the contribution to the National Pension Reserve Fund (NPRF) are included, the overall gap between spending and revenues in will be over €20 billion.

So An Bord Snip Nua was charged with finding €5.3 billion over the next two years to help reduce the deficit to a level that was considered more manageable and that might allow the Government to hope to return to a 3% deficit by 2013. Its recommendations will result in massive cutbacks reducing public sector employment by 17,300 within the core departments alone.

Despite the scale of these cuts, the report notes that the Government will need to "secure further savings in public service pay costs to achieve the required reductions in overall public expenditure...in addition to the numbers reductions proposed in this Report".

Furthermore, the retention of the 3% fiscal deficit goal points to the likelihood future cuts being brought to bear in the period after 2011. And, as the report notes in passing, the cuts are only potentially sufficient "leaving aside the Government guarantee of liabilities in the banking sector". Estimates provided by the IMF and a variety of other agencies are now pointing towards this costing at least €25 billion extra although the potential liabilities are ten times that figure if the banking sector collapses in the meantime.

Reduction in the Capital Programme

Although the report did not have a focus on reducing the Public Capital Programme it identified cuts of over €1.7bn, or almost 19% on the 2008 figure. Again, this is dressed up as "the need to re-prioritise capital investment on the most productive areas". Ever hopeful, the group considers that "there should be scope for further scaling-back and reprioritisation of capital expenditure". It notes without blushing that this level of cutback to domestic consumption will be "without major loss of economic benefit".

The ideological proclivities of An Bord Snip are clear for all to view, cutbacks to public consumption in the midst of a recession are to be considered neutral to the Irish economy. It is good to see that the spirit of Herbert Hoover is alive and well in Ireland despite the negative opinion he is held in by the remainder of humanity.

The Cull of Public Sector Workers Continues

The reduction of 17,300 public sector jobs will have an immediate and direct impact on the quality and accessibility of essential services. Furthermore, it adds to the large numbers who have already been shed under the existing measures implemented by the Government to date. These measures include a moratorium on filling vacancies arising, an incentivised early retirement scheme, a civil service incentive career break scheme and a shorter working year scheme. These schemes are estimated to contribute €300 million already to government coffers whereas the new measures proposed would result in an extra saving of €700 million on top of this (excluding pension contributions).

Departments under the Axe

The report proposes the break up of the Department of Community, Rural & Gaeltacht Affairs (DCRGA) and the Department of Arts, Sport & Tourism (DAST). The two Departments chosen reflect the ideological priorities of the group. Those with responsibilities for arts, sports, tourism, community, rural and regional development are first up for the chop. The purported aim being to redistribute their functions and achieve economies of scale but the reality is belied by the report's admission that these transfered functions "be critically examined in light of the extensive savings that are proposed". No doubt these 'soft' targets which are relatively 'unimportant' to business will be easier to pick off when they are spread around other Departments.

The cuts in DCRGA include €64 million for community and voluntary sector supports, services and development programmes, €2.6 million from Drugs taskforce budgets, €19.1 million from rural and regional development spending and over €50 million in cuts for the Gaeltacht and the Irish language. Cuts in DAST programmes include €17.7 million to the Sports Council's budget and €16 million for the Arts and Cultural sectors. Tourism, the poor cousin of the economy, is also up for a reduction of €27 million to better reflect the current circumstances.

The report also coyly recommends that the elimination of these two Departments might "allow for the creation of up to two other Departments, whose creation could reflect emerging priorities for the Government". From the evidence above, there can be no doubt but that these new Departments will be more attuned to the needs of business, perhaps oriented to ensuring a swift disposal of any nationalised assets?

Killing the Goose that lays the Golden Egg

The seemingly irrational, myopic pro-business orientation of An Bord Snip Nua is exposed in its treatment of Sciences, Technology and Innovation (STI) expenditure. This provides support for research and higher education objectives. The report is critical of spending on science despite acknowledging its importance to enterprise and education policy since the "scale and nature of any ultimate economic impacts arising cannot be known with confidence". It suggests that any "further STI investment must yield clear economic returns".

The reports authors evince a heightened sense of concern for the future of PhD graduates given the likelihood that they "will be underemployed or forced to emigrate". It suggests that that one-fifth of new doctorate holders find "employment overseas" and that, of the remainder, most - horror of horrors - "find employment in the public rather than the private sector". It concludes that as a result, there's no justification for the expansion in support for those gaining doctorates.

Instead, the report urges that research positions should be funded by a cocktail of business and philanthropy sources instead of publicly. There's no consideration of the likelihood of research conducted being short-termist and restricted to those areas of immediate commercial importance to businesses but that would be thinking outside the pro-business paradigm.

From this brief analysis, the group proposes an "initial reduction of over €100m" or 15% of the 2009 STI allocation. This includes current expenditure cuts of €17 million on education and science and €5 million on children and health research which are prime targets for the pro-business group.

Public Transport Under the Axe

Once again, the group's predilection towards aiming the cutbacks in the direction of public services is exhibited in its treatment of public transport spending. The report determines with the minimum of hesitancy that "there should be no further development of the Western Rail Corridor" irrespective of its importance to a region suffering from classical symptoms of 'market failure' and peripherality.

As for our roads, the recent significant improvement over their former shocking state is jumped on as an excuse to recommend an arbitrary reduction in the road maintenance budget of €20 million a year.

But if the potholes are making a comeback, the good news is that fewer people will be able to afford to maintain a car on the roads. Reducing the budget for the Road Safety Authority, the group recommends that the its driver testing and instructor testing/registration activities be run on a "full cost-recovery basis". The aim being to make the RSA "entirely self-funded". Thats code for a hike in testing, registration and roadtax.

Wider public transport schemes certainly did not escape and subsidies towards supporting bus transport are to be slashed "reflecting the need for major efficiencies across its cost base" [indicated at €55 million a year]. As for trains, "the lightly-used rail lines should be closed and replaced with bus services". It is clear that the lessons of past decisions to uproot train tracks have been remembered by this august body and that they remain innocent of the urgency of adopting electric rail transport in meeting Ireland's carbon emissions' targets.

Part Two will deal with the detail of cuts across the remaining Departments and the importance of meeting this reactionary agenda with the only response possible of reversing this agenda of austerity.