Ireland: Huge budget cuts on the way

Each measure to which capitalism is constrained in order to make a step forward in restoring equilibrium, each and all of this immediately acquires a decisive significance for the social equilibrium, tends more and more to undermine it, and ever more powerfully impels the working class to struggle.” (Leon Trotsky 1921)

Brian Lenihan is planning to cut more than €15 billion out of the Irish economy over the next four years. This represents more than €3,000 for every man, woman and child in the state. December’s budget is likely to be “front loaded” as well, which means bigger cuts up front. The balance between cuts and taxes will no doubt be designed to assuage the rich and place the pressure on the working class, particularly the public sector workers... again.

But taking so much money out of the economy will have a huge ripple effect. Families will have less money, they’ll save less which will have an effect on the banks and they’ll spend less which will have an effect on the retail industry. Falling retail sales will have a knock on effect on industry which will result in more unemployment and less tax revenue for the government. The crisis in the Irish economy means that the government is trapped in a downward spiral. Irish capitalism, together with the rest of Europe and indeed the whole of the world, is in a deep impasse. Here’s what the Independent reported on Wednesday 27th October:

“We face a massive cut in our living standards, the Government warned last night, as it plotted a €15bn course of savage spending cuts and taxes.

The first cuts in a four-year package of "hairshirt" budgets will be the deepest, Finance Minister Brian Lenihan admitted, but he refused to put a figure on this year's total.

This will inevitably mean cuts to welfare benefits across the board, frontline health services and the education system.

The stark extent of what has to be done to rescue the economy was outlined after two days of intense talks and discussions.

The new €15bn target is twice as bad as the previous prediction. It more than matches the amount of spending cuts and tax hikes already inflicted since the economic crisis began over the past two years.

And there were suggestions from economists that the measures might not even be enough to bridge the gaping hole in the public finances.

A gloomy forecast from the country's largest stockbrokers shows how the Government may be chasing a moving target with its €15bn budget correction.

The 2011 estimates from Davy Research are significantly gloomier than those from the ESRI on which the Government is basing its budgetary plans.

The Economic and Social Research Institute expected national income (GNP) growth of 2pc and 2.25pc in output (GDP).

Davy says GNP will rise by only 1.2pc and GDP by 1.9pc. Even these differences would be enough to add some €2bn to the deficit/GDP ratio.”

From the point of view of the bourgeois the perspective is very clear. The only way that this problem is going to be resolved is through a concerted attack on the living standards of working people. Under these circumstances the Croke Park deal will not be worth the paper it’s written on. We argued from the outset that the conditions for a “good” deal with the government just weren’t there. The Croke Park deal gave a green light to the government to introduce sweeping counter-reforms in the public sector, in exchange for a four year moratorium on wage cuts. We explained in advance that the deal would be extremely hard to implement as workers would understandably be horrified at the government’s reforms, and that the economic instability in the euro zone and in the state itself would result in the government reneging on their commitment to no wage cuts.

For months now the bourgeois press has been full of the great and the good arguing that the Croke Park deal was an outrage. After all, why should public sector workers have more protection than the private sector? In other words the Irish bourgeois want to be able to have their cake and eat it. The truth is that the economic crisis has undermined all of the old ways of doing things. During the Celtic Tiger years the idea that all questions could be resolved through a compromise between the government and the unions, in other words through a “Social Partnership”, could achieve a certain credence. Ireland seemed to have changed. Now, all bets are off. The crisis has transformed the outlook of all classes in society.

The signing of the Croke Park deal resulted in a lull in the trade union struggle on a national level. The reforms in the public sector have already generated big opposition, but the reforms are being implemented on a local and regional level in many cases. The budget is likely to be accompanied with further cuts in the public sector. An Bord Snip was seen as being a big threat previously. But now it’s more of a Sword of Damocles hanging over the public sector workers.

The crisis in the economy has reached a critical point. The small signs that the economy was starting to recover are under threat from the general European crisis and it’s possible that the economy could go back into recession, especially if there are deep cuts. Given the crisis in the government it’s no surprise that Cowen and Lenihan have been trying to seek some sort of consensus with the other parties in advance of the budget. From the point of view of the bourgeois a grand coalition or some sort of National Government would help them to implement the cuts they want, but in the long run it would be at a tremendous cost as it would discredit all the parties.

The main parties have all agreed that cuts need to take place in the public sector. Eamon Gilmore has, however, tried to avoid setting out his plans. The Labour leadership are keen to see economic growth as a way out of the crisis. But any recovery is likely to be weak and vulnerable to international events. We think that Labour should break decisively with the capitalist parties and adopt a socialist programme.

Throughout the economic crisis the trade union leadership and the Labour leaders have tended to lag behind events. It is no surprise that many workers feel that there is little to choose between the parties. Neither is it surprising that many feel that the economic situation is worse than the politicians are telling them. The government are chasing what the Independent rightly called a “moving target”. We have consistently explained the depth of the capitalist crisis in the state. This is no blip; it’s a structural crisis. No amount of papering over the cracks will solve the problem. The only answer is for the trade unions and the Labour Party to break with the failed policies of “social partnership” and to struggle for a Socialist programme.

(29 October 2010)