Coalition Braced for Second Showdown with Pensioners

By Fionnan Sheahan, Independent.ie

May 14, 2010

Ireland

Ireland is currently running a budget deficit that is four times the EU's limit but has promised to bring it below 3pc of gross domestic product by 2014.

This will be achieved through a series of spending cuts and tax hikes worth €16bn all told.

In Budget 2010, the Government identified €4bn worth of savings and next year another €3bn has to be found. 

The 2010 'adjustment' may have been the most severe of the five-year plan to rein in the public finances, but it was by no means the end of the line. 

Finance Minister Brian Lenihan insists the economy has "turned the corner" and that it is time for consumers to be more optimistic about the future. 

Yesterday Goodbody Stockbrokers said the recession was over. 

Raising its forecast for the economy this year, it said recent figures indicated the economy resumed growth in the first quarter of this year. 

But the task of reducing the deficit remains the same. 

This week, Mr Lenihan gave his cabinet colleagues four weeks to come up with proposals on areas to cut spending. 

The minister will be holding one-to-one meetings with cabinet counterparts in the coming month.

Last year the softening up of public opinion on the pain to come went well into the autumn with the publication of Colm McCarthy's Bord Snip report and the report of the Commission on Taxation. 

McCarthy's report won't be gathering dust as ministers are sure to use it as their first port of call.

The budgetary process is advanced by about three months this year as the Department of Finance seeks to get ahead of the game. 

Groups hoping to influence the decisions being made in Budget 2011, as the axe falls on public spending, would be better off lobbying now than waiting for the pre-Budget run in late December.

Inevitably there will be the final rush and next year's Budget won't be written within the next month, but important groundwork will be laid. 

The days of departments squabbling with Finance over the autumn months over how much their budgets would increase by are a distant memory. Merrion Street only wants to know now where savings can be made and where the cutbacks can be found. 

In Budget 2010, the Government took the political decision not to touch the old age pension. 

The upheaval of a year earlier when the abolition of the automatic entitlement to a medical card for the over-70s meant they were not willing to subject themselves to further ire from the grey vote.

The badly handled over-70s medical card debacle saw the elderly take to the streets, the loss of a Government TD and the severe undermining of the coalition's ability to implement the necessary austerity measures. 

The Government argued the change in eligibility criteria was flagged in advance, so shouldn't have come as such a shock. The ill-conceived explanation of the new income thresholds was what prompted the backlash. 

Eamon O Cuiv certainly won't be accused of not giving ample warning of a cut to pensions -- if the Social Welfare Minister does preside over it in December's Budget. 

The minister ran the prospect of a cut across the board or a new means-testing system up the flagpole yesterday. 

THE over-70s medical card debacle, whereby the automatic right to the benefit was initially removed, did establish the principle of withdrawing universal entitlements from those who can afford to pay their own way.

O Cuiv speaks about protecting the most vulnerable and clearly doesn't include those on hefty pensions within this category. 

The question posed by the minister's views, to which he doesn't provide an answer, is how do you remove the pension from those with a substantial income?

Presumably, the vast majority of those on hefty public or private pensions, with an ongoing revenue or significant wealth, are getting the contributory state pension. Over the course of their working life, these people have contributed to the PRSI system, so are getting a return.

Is the minister saying he will withdraw the entitlement to be paid from a fund into which they have paid? 

The non-contributory pension is already means-tested and only paid to those in need of it. If there is a reduction to the pension rates, it will be the same across the board -- but a €10 cut hurts those solely dependent on the basic state pension far more than those with an additional pension. 

The Government went down this route last year when it tried to find a way to make savings on the child benefit spend but couldn't find any way of doing it apart from a cut across the board. The issue was examined, at length, by the Commission on Taxation and no resolution was found.

If Minister O Cuiv has identified a way of taking the state pension from the rich and leaving it untouched with the poor, he should reveal his Robin Hood plan.

 
Pensioners were spared the axe last year. Unfortunately, it's unrealistic to expect they would not be hit at some point over the course of five years of savage budgets -- especially when other social welfare recipients are seeing their incomes reduced.

Mr Lenihan has two more budgets to deliver before the next general election in 2012, assuming the Government survives that long. 

Fianna Fail will be balancing the need to find €2bn in cuts on the one hand and the fury of the grey voters at the ballot box in the other.

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