No doubt that An Bord Snip"s cuts will be painful

After raising taxes through a range of income, pension and other levies, the Government may have thought that cutting public spending would have been the politically easier task. Last year, international economists at the leading organisations such as the Organisation for Economic Cooperation and Development (OECD) would have told you that after a dozen years of surging economic growth and double-digit rises in Government spending, there ought to be savings to be found among the government schemes implemented at a time of public spending excess. That may have been the case if only modest cuts were needed to stop Government spending bringing the country to bankruptcy. But the savings required are so huge - at least €5bn needs to be found from current day-to-day expenditure through to 2011 - that the cuts package will be unprecedented. No surprise, then, that even the date of the publication of the recommendations by the group led by the UCD economist, Colm McCarthy, is shaping into a big political row, showing just what is at stake for many people. McCarthy"s group is popularly known as the An Bord Snip Nua but its official name, though awkward on the tongue, the Special Group on Public Service Numbers and Expenditure Programmes, precisely sets out what the body is about. Recommending public expenditure cuts will probably be the easiest bit. Implementing the cuts by a politically unpopular Government will be difficult because the cuts will affect everyone. Recommendations that could include the phased reductions in child benefit and unemployment payments would be implemented next year and in 2011 when unemployment will be hurtling toward 17 per cent. Funding cuts will reach into hospital emergency departments and will plunge the budgets of local authorities further into the red. Many people listening to McCarthy over the years believe that he personally dislikes the big prestigious capital spending projects such as the proposal for Metro North in Dublin. However, it has been overlooked in media commentary that his group is focused more on finding ways to cut current spending. The lesson from the past was that even mild expenditure cuts lead to huge political rows: former Minister for Finance Charlie McCreevy hit a barrage of criticism when he proposed limiting the number of community employment schemes during the economic downturn six years ago. There is then the other side to An Snip"s nameplate: controlling public sector payroll numbers. Whatever it recommends in cutting public sector numbers will take years to deliver. The savings here represent the long-term reform of the public sector. Its recommendations obviously have the potential to lead to clashes between the public sector unions and the Government. It is easy to lose track of the amount of tax measures and spending cuts the Government scrambled to make this year just to stop the budget deficit from getting worse. Here"s how the economists at the Economic and Social Research Institute (ESRI) recently summarised the measures already taken: 'The January package of €1.8bn primarily affected current expenditure through reducing payroll costs via the pension levy and it was equivalent to €2bn in a full year. In the 7th April Supplementary Budget, additional cuts in current expenditure of €886m were also announced, again mainly falling on payroll costs. In addition to these cuts on current expenditure, the April measures also included cuts of €576m on capital expenditure. 'On the taxation side, the tax increases in the April Supplementary Budget were implemented, falling mainly on income tax via the income levy and the health levy. Together, these amount to increases of €1.8bn, rising to €3.5bn on a full year basis. These cuts are equivalent to over four per cent of GDP.' For 2010 the ESRI economists allocate the €1.75bn tax increases announced in this year"s Supplementary Budget across, for illustrative purposes, income taxes (€850m), excise taxes (€100m), a carbon tax and other taxes. 'On the expenditure side, gross current expenditure is cut by €1.5bn, while gross capital expenditure is cut by €750m. On a full year basis, the 2010 measures are equivalent to almost three per cent of GDP,' it says. The ESRI economists continue: 'If fully implemented, the cumulative impact of these measures would be such that the Government will have reduced borrowing by over seven per cent of GDP in 2010. The scale of this correction is very large, unprecedented in Irish fiscal history. In terms of the composition of the announced cuts, they are spread equally between revenue and expenditure, with the emphasis being placed on price savings that can be made on the expenditure side. 'Official budget figures suggest that volume of Government consumption of goods and services should remain unchanged in 2010, implying further cuts in wages and prices paid for goods and services in the public sector that year.' In short, a lot of money has been sucked out of disposable spending. An Bord Snip will have to take out a lot more.