Carthago (Croke Park) delenda est… er …why?

Yet again there is more emphasis on Croke Park in the Sunday Business Post at the weekend, this time in the BackRoom column. One wonders who wrote the piece. But, it follows a now-traditional line.

As political parties held their think-ins in advance of the new Dáil session, all eyes have now turned towards December’s budget.
Having swallowed an estimated €24.5 billion-worth of budgetary austerity already, Irish voters must prepare to gulp down another €3.5 billion dose in 2013.
It is envisaged that that will comprise €1.25 billion in tax increases and €2.25 billion in further spending cuts.

S/he continues:

Over the coming months, cabinet ministers in spending ministries will have anxious meetings with their own staff, followed by difficult bilaterals with officials from the Department of Public Expenditure and Reform as spending plans for 2013 are formally framed. But the government’s determination to protect spending in some areas means that the axe will inevitably have to fall harder on others.
This year, public pay and pensions are budgeted to be €18.4 billion. That’s 30 per cent of the government’s gross current spend. Welfare spending of €20.5 billion is expected. That represents 34 per cent of the government’s spend. The national interest bill will come in at €6.7 billion, or 11 per cent of current spending.

And:

While the government’s overall spending reduction target of €2.25 billion may represent less than 4 per cent of total current spending, it represents nearly 15 per cent of non-pay, non-welfare, non-interest spending.
The problem is that this remaining spending represents the very frontline services which politicians of all political parties have pledged to protect. It is the non-wage, non-welfare, non-interest component of public spending which finances the purchases of drugs by the HSE, repairs of our schools and the purchase of necessary services from outside government.
These areas of spending have already been heavily depleted by past cuts. We saw only last week the difficulties that Minister for Health James Reilly had to face when the HSE contemplated a cuts package of €130 million, a mere one seventeenth of the government’s total cuts target for 2013.

All this is mostly true – in terms of the facts.
But the anonymous writer continues:

So what budgetary options do Enda Kenny and Eamon Gilmore have? Realistically speaking, they have two options: option one is to persist with the strategy of Budget 2012. That has the advantage of leaving key political commitments on the income tax rate, welfare rates and public sector pay untouched.
The disadvantage is that it concentrates spending cuts on the already hard-hit third of current spending on frontline services.
Option two involves reneging on one or more of the commitments not to increase income tax, not to cut welfare rates and not to reopen the Croke Park agreement (CPA).

But there’s a problem with that analysis. As I noted last week the major problem here is that there is no quantification of what if any savings are possible from doing away with Croke Park. This is a twofold problem. Firstly no figure is set as to what might be gained and at what level. For example, does the writer envisage that there might be a twenty per cent cut in wages – or a less extravagant ten per cent cut in wages? We are not told. Secondly, the benefit of any such cuts is not laid out. What, for example would a ten per cent cut in wages deliver? And would – as the logic of the Fiscal Council’s advice only last week for greater expenditure cuts in order to cut the deficit, mean that any monies ‘saved’ from doing way with the CPA simply go into the money pit rather than being spent in this economy? That’s the essential problem with all this.

Now it is true that as the SBP piece admits:

If the government is sticking with Croke Park, then the burden of budgetary pressure must inevitably fall even harder on reduced frontline services, reduced welfare rates and/or increases in tax.
That is the hard political choice which Kenny has made in order to hold together his coalition with the Labour Party.

But as ever this area is riven with contradiction, because it also notes that:

Kenny might want to reopen the question of welfare rates, but Gilmore is unlikely to let him do that unless he also reopens income tax. And neither is likely to want simultaneously to increase tax rates, cut welfare rates and ditch the CPA. That would mean taking on too many strong lobbies at the one time.

But surely that’s precisely the option two that the writer posited earlier in the piece. If that option is politically unfeasible – because of ‘strong lobbies’ or whatever, why pretend that it is politically feasible?
The SBP editorial on the same matter suffers from precisely the same flaw.

There is a complete lack of reality surrounding much of the recent debate on the Croke Park agreement. Missing from it is one key fact: we are still facing a major deficit and national debt crisis.
Perhaps all the talk of our bailout being ‘on track’ has lulled us into a false sense of security about everything being fixed. Just read the latest IMF report: it warns that, if growth does not pick up, the Irish debt-to-GDP ratio could head to 130 per cent or higher. The modest revival expected in economic growth when the deal was struck has simply not happened. The agreement, as structured, is unsustainable.

But what, precisely, is sustainable? Answer there is none.

Talk of negotiating a new approach for the next agreement, or engaging in some kind of a review of the current one, simply does not capture the urgency of what needs to be done. The Croke Park negotiators had hoped that, by now, a revival in the economy would be making it all a bit easier by boosting taxes and lessening spending pressures in areas such as welfare. This has not happened and, while Ireland may well meet its deficit target for this year, the absence of growth threatens to undermine efforts to stabilise our national debt.

Though in fairness the SBP editorial doesn’t pretend that the issue is mitigating or ameliorating cuts elsewhere in public expenditure. Or not quite:

Talk of negotiating a new approach for the next agreement, or engaging in some kind of a review of the current one, simply does not capture the urgency of what needs to be done. The Croke Park negotiators had hoped that, by now, a revival in the economy would be making it all a bit easier by boosting taxes and lessening spending pressures in areas such as welfare. This has not happened and, while Ireland may well meet its deficit target for this year, the absence of growth threatens to undermine efforts to stabilise our national debt.

Indeed it’s almost, but not quite, entertaining to see how the why’s and wherefores are entirely lacking.
All one is told is that:

Success in [renegotiating the par of the debt relating to the bank bailout] this would make the task of stabilising the public finances easier. However, deal or no deal, the cost of running the country remains well above what we are taking in through tax and other revenues. To fix this and to try to avert the threat of our rising debt mountain, the Croke Park structure must be seen as unsustainable.

This might be true, or more likely, it may be that the demands placed on the state are simply too great for this state as a socio-economic structure to bear – a thesis that has support across a wide range of external voices – but actual proof positive that this is the case is frustratingly thin on the ground.

Tellingly, in an article in the same edition of the SBP, Donal Donovan, late of the IMF, mentioned the the CPA not at all in his analysis of where the Government now stands and where it should go next. Indeed he says:

Irrespective of the tactics adopted, many believe that it will prove increasingly difficult to bridge the gap between the current deficit of 8-9 per cent of GDP and the target of 3 per cent by budgetary measures alone, especially if growth fails to rebound.

And:

The implication is that the IMF staff in late 2010 may well have had doubts that, in the absence of some form of debt relief, budgetary measures alone could solve the deficit and debt sustainability problem. They would presumably hold that belief even more so today, when the revenue boost associated with the economic recovery assumed two years ago has not materialised.

Still, while all of that is interesting for what it doesn’t say as much as what it does, check this final thought out from Donovan. He argues that the Government should set out its plans in terms of cuts/tax increases and so on over the next three years.

This could well herald a political backlash and lead to a sharp switch in electoral support in a direction which, whatever about its short-term appeal, would not be in the long-term economic or financial interests of the country.

Who on earth could he be thinking of?

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