Hard choices must be faced up to

Last week, the International Monetary Fund (IMF) and the Paris-based OECD laid bare the perilous state in which Ireland Inc finds itself as the country undergoes a severe contraction of the order of 10 per cent. Recovery, they add, will be painfully slow and many hurdles remain to be surmounted before we are clear of this hole we have dug for ourselves. The extent of the pounding this country has taken is set out in the IMF"s use of phraseology like that fact that our problems 'are as severe as any advanced economy since the end of the Second World War'. The Irish economic and property bubble was the biggest of any significant western economy - and our regulation the loosest. Thus, when the bubble inevitably did burst, as it did late last year, it caused calamitous damage that will continue to reverberate for years to come. Appalling Government mismanagement of the economy has meant we will suffer the most in this economic downturn, where jobs are being lost at a record rate, many businesses are struggling to keep their heads above water, house prices are continuing to tumble and the Irish Banking Federation is warning of an avalanche of home repossessions to come in the year ahead. Yet, as the IMF pointed out in its report, it issued several warning to the Irish Government during the boom years that such strong rates of growth as experienced by Ireland masked 'serious imbalances', but this advice was ignored. The Government has a huge task ahead of it if the country is to successfully negotiate the extremely treacherous waters that lie ahead. It will take a great deal of political bravery to dole out the unpalatable medicine that needs to be administered if Ireland is ever to see anything like modest rates of growth again within a few years. Brian Cowen"s administration needs to raise approximately an additional €6 billion in taxes over the next five years to help offset a fall in State revenues, mostly from the property market collapse. A property tax has been suggested, but is likely to be extremely unpopular against a backdrop of plunging house valuations, negative equity and that fact the people feel they have already paid through the nose in stamp duty in purchasing their homes at highly inflated prices. Similarly unpopular is likely to be any suggestion of reducing unemployment benefit to the hundred of thousands of people who now find themselves without a job. It is clear, though, that future action will have to concentrate on expenditure cuts and much of this is likely to come in the public service, where wages are already higher than in other advanced economies. In tandem with this, the Government must take on board the argument that wholesale tax hikes in an economy in a deep recession will only prolong that downturn. A fine balance will need to be struck between finding new revenues sources through taxation at the same time as curtailing spending. Much will depend upon what the An Bord Snip Nua report, presented to Government this week, contains. With a public sector pay bill now accounting for over 40 per cent of current expenditure, this country simply cannot afford to finance its continuing expansion. The Government will need to face up to its responsibilities in tackling this thorny issue and make the hard choices when it comes to implementing cuts to this bloated area of public expenditure.