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Wednesday 16 May 2012

Ireland today, Britain tomorrow

It was Brian Lenihan yesterday and in a fortnight it will be Alistair Darling's turn to announce the bad news when he delivers his emergency-in-all-but name budget. Or bloodget. Lenihan, the Irish finance minister, did his best to spread the pain around, announcing tax increases and cutting spending while leaving many of the most difficult measures to next year's budget. The Irish economy is forecast to contract by 8% this year and, even after the cash-saving and raising measures announced yesterday, the government will run a deficit of 10.75% of GDP. Eye-watering and sobering stuff. 

In the Irish Times Mark Hennessy writes:

For weeks, the Cabinet has debated the options in detail unlike any previous cabinet. Eventually, it decided that it could not cut more than €3.5 billion out of the economy this year, lest it choke what life remains in it – and it had to do it more by tax rises than cuts.

But a stimulus package, regardless of the Opposition’s demands for one, was not possible: a ship cannot be righted until the crew has first managed to stop new water coming in. And Ireland is still taking water on board.

It’s a judgment call on which everything depends. If Lenihan is wrong, the economy will go off a cliff and taxes will collapse. If he is right, Ireland will hit a bottom, and a bad one, but one solid enough from which we can rebuild.

However, he shirked the toughest options. Spending will be the major target next year, he promised. Reform in the public service will happen next year, he promised. These are not easy options: they mean sackings; an increase in school class sizes; the closure of hospital wards; and the spread of potholes on rural roads. This pain will not be shallow or short.

No it won't. But if Darling can consider himself fortunate that the hole he's in is not perhaps quite as deep as that Lenihan is struggling to escape, the British numbers are going to be almost as bleak. In the longer-term, of course, it shouldn't be his problem, just as one imagines the Plain People of Ireland may (at long last!) feel that Fianna Fail, having been in power for 20 of the last 22 years, will soon deserve a spell on the opposition benches.

As my old university pal Sarah Carey puts it in the Telegraph:

Generous social welfare payments have been slashed and emergency income tax levies have been doubled. Minimum wage earners will now pay some income tax. He even cancelled Christmas – the traditional dole double payment in December has being cut. Worse, we know there is even more to come over the next five years. The war between public and private sector workers will continue to rage as his speech included precious little about public sector reform.

Something similar is going to happen in Britain and we too can look forward to a rancourous struggle between the public sector and what remains of the private sector. Everyone knows this. The question now becomes how the Tories launch a pre-emptive strike against the nonsense of Labour's looming campaign against "Tory cuts"...

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