Ivan Yates Predicts Major Cuts, Tax Increases and Frontline Service Cuts

Analys


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By Ivan Yates

Monday February 14 2011

Community alert: Caution is required by all households. Thousands of door-to-door sales representatives are currently calling. No, not Jehovah's Witnesses promising paradise.
Local party troops promising false economics -- mostly economical with the truth. An attempt is being made to pull the wool over the eyes of voters. Two weeks of campaigning and politicians are seeking to paper over the cracks of gaping holes in their fiscal plans. Voters should be so sceptical of the soft shoe shuffles and soundbites that conceal our prospective austerity.
Spurious claims include: No cuts to frontline services; no increases in payroll taxes for incomes under €100,000 per annum; no residential property tax on your family home; creation of tens of thousands of jobs from state pension funds; retention of welfare rates. These reassurances are incompatible with commitments entered into with our creditors. The party manifestos have been forensically digested. They're at it again folks -- same as 2007. This time, promising painless recovery that is unreal.
All parties acknowledge the €19bn deficit and promise to reduce it by €9bn over four or six years. Top-line scenarios are ostensibly plausible. The small print obfuscates with a fog of deception. Fine Gael's fiscal plan promises to cut public spending by €6.5bn over three years. How? It is going to set up a new 'office of property and procurement'. No details are provided as to the €300m to be saved. Will it be rent reductions, cheaper telephone bills or paper clips? Savings of €377m are to be achieved by a comprehensive spending review. No specifics. Call Keith Barry; an illusionist is required.
An 'all-out war' on social welfare fraud is to yield €1bn in cost reductions. No information is provided as to what categories of claimants are currently perpetrating this incredible level of cheating. Water is set to provide a double windfall for FG in government. It has included €250m for cuts in water subsidies plus €500m of receipts through commercial financing of water infrastructure. It proposes that a new national utility company will provide all water services. Reducing public sector numbers by 18,000 (6,000 per year), while insisting on adhering to the Croke Park Agreement of no compulsory redundancies will yield economies of €1,080m. Minutiae is minimal.
Labour sidesteps the €9bn dilemma by postponement and ultimate assumptions of growth. Therefore, the overall approach is nebulous and clouded by bailout renegotiation optimism. It seeks equality between extra taxes and spending cuts. Its stated agenda of extra taxation only amounts to €2.9bn. When you add up the sum of these parts, the arithmetic does not hold. Absolute abolition of income-related reliefs on property investment and private pension contributions won't reach the target. Even with petrol at €1.65 a litre, there is a significant shortfall in balancing the books. Its fig leaves don't cover the bare essentials of credibility.
Sinn Fein has completely lost the plot. It expects National Pension Fund reserves to provide an employment-creation fund for 50,000 jobs AND sufficient cash to run the country for the next three years. It will unilaterally withdraw from €67.5bn EU/IMF bailout fund. Jesus' loaves-and-fishes miracle looks facile. It opposes any diminution of public services or welfare, plucking a revenue target of €1bn from of a wealth tax. Neither Revenue nor the Department of Finance stands over Sinn Fein's revenue projection. Fantasy politics.
Fianna Fail is visibly disengaging from government. It contests this election as a pseudo-opposition party. It's not working. Its tenure in government was an out-of-body experience it can't recall. FF won't say how €2bn of increased income taxes will be raised and now opposes broadening the tax base. FF has no appetite or ambition for government. Organisationally, the party is traumatised. Its sole preoccupation is personal survival, resulting in an esoteric approach to the economy. Micheal Martin is in an impossible situation.
The unspoken truths? Parties' plans have no provision for inflation up to 2014 -- a highly dubious prospect. Their predictions can be more than 10pc awry. Significant household charges in the coming three years are inevitable. With 1.6 million households and a waiver for those on lowest incomes, you can expect an annual water bill of €500. This is irrespective of a new utility company (BGE or NRA) replacing the local council service. Deliberate complexity and confusion disguise Residential Property Tax proposals. Superficially, a 'site tax' seems innocent. The ESRI, the Commission on Taxation and the Central Bank have all advocated RPT. The IMF has been promised a residential property tax by the end of 2011. It's on the way.
The mask slipped mid-week, with the resignation of the CFO of Anglo, Maarten Van Eden. His past credentials, with ING, are awesome. In his departure letter, he slated the Department of Finance and the NTMA. His speech to staff, outlining his reasons for going, was a damning indictment of official paralysis. This should be taken in conjunction with Alan Dukes's assertion that an additional €15bn will be required (beyond the €35bn agreed in the bailout) to recapitalise AIB, Bank of Ireland and EBS. There is a conspiracy of silence from Merrion Street and Dame Street about the true state of the banks.
Who do we believe? Denials of politicians seeking votes or a public-interest chairman? Dukes has a healthy disdain for the media's appetite for the news agenda. He doesn't make claims spuriously or speculatively. He knows a lot more than he is saying. He states an extra €25bn of 10-year NAMA/ECB bonds will be required to provide liquidity to cover new toxic balance sheet impairments. Stress tests in late March will confirm the horrific truth. The deafening silence from Patrick Honohan speaks volumes.
Back at the circus, RTE's 'Frontline' programme tonight hosts the five leaders' debate. The outright winner will be Kenny -- not Enda, but Pat. His cerebral, polished questions, intelligent interventions and segues will contrast with each leader not being able to land a knockout blow. This ensures a score draw, with a thick veneer over any real content of a programme for government.
My overall prediction? Fine Gael will win more than 65 seats. Labour more than 30 -- a combined comfortable working majority. The unresolved battle is between Fianna Fail and Labour as to which will be the second-largest party.
All strategists' narrative is based on the belief that children should not be told the full story. We need their protection from unvarnished truth. Expect the mushroom strategy (total darkness and a diet of manure) to suffice for Joe and Josephine Public until polling day.
- Ivan Yates
Irish Independent