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McCreevy’s secret memo reveals plan for warfare on working class. Part 1

Joe Craig

29th September 2002

The revelation in a government document inadvertently made public that the new Fianna Fail/PD government was planning public spending cuts of at least €900m only days after being elected on a pledge that ‘no cutbacks whatsoever are being planned, secretly or otherwise’ (McCreevy) has produced calls from the press and opposition politicians for Finance minister McCreevy’s resignation.  Such calls are made not because these people oppose the cuts, oh no.  Their complaint is that McCreevy didn’t tell everyone what was going on before the election and thereby may have lost a certain amount of moral authority in being able to carry them out.  Their fear is therefore that he and the government have made it more difficult to make the cuts they all agree are necessary.

They are also concerned that they will have to be bigger than stated because they are based on a Gross Domestic Product (GDP) growth of 3.9% this year and 5% over 2003 to 2005.  The document itself warns that the scenario of €900m worth of cuts is crucially dependent on this level of growth and that ‘there are substantial risks to this prospect.’  There certainly are; the latest International Monetary Fund quarterly Financial Global Stability report warns of ‘growing concerns about the strength and durability of the global recovery.’  The memo warns that the forecast is also dependent on ‘no major change in exchange rates’ while it is precisely ‘substantial exchange rate movements’ that worry the IMF.

McCreevy has defended himelf by saying that he had an election to win, that the cuts aren’t cuts but ‘adjustments’, that they are based on next years service level (?) and that they will have to be bigger than that already revealed!  After all, we are all meant to agree, poor Bertie Ahern has had to give up his dream of building a national stadium, the ‘Bertie Bowl’, why can’t the rest of us get used to health workers losing their jobs and education programmes aimed at the most disadvantaged, such as adult literacy and school drop outs, being slashed?

The hired hacks of the press have ridden in to battle to tell us that really no one should be surprised. The political reporter of the Irish Times tells us: ‘In reality, however, Fianna Fail and the progressive Democrats were perfectly aware that tougher times were coming before the election day.  So too was the opposition.  So too was the media.’ (IT 23/09/02)  All this is absolutely correct.  Straight after the election an article in the Irish Times put it perfectly: ‘The Opposition effectively conspired with the Government parties over the last six months to disguise the sheer horror of our finances.’ (IT 21/05/02)

As we noted in our book on social partnership, the last time the public finances were in difficulty the opposition rallied behind the government in what became known as the Tallaght Strategy.  The same will no doubt happen now.  The Irish Congress of Trade Unions (ICTU) also entered the first modern social partnership deal at this time, playing a crucial role in facilitating the cuts and sabotaging opposition.  The current deafening silence of  ICTU and their vote to negotiate a new partnership deal demonstrate that they will play exactly the same role again.

These forces, including ICTU, are doubly worried because they fear that the lies and deceit of the government may lead substantial numbers to vote against the Nice Treaty.  All have therefore called on voters to ignore the lies when voting on the Treaty even though Ahern was stupid enough to say the referendum was being fought like an election.  It is at times like this that all the pretence of democracy: real differences between parties and real debate over these differences helping inform an educated electorate all disappear.  It is then we know that something of fundamental interest to the ruling class is involved.

The figures

The latest fiscal crisis is put down to government incompetence by the opposition.  They point to the fact that in 1999 and 2000 tax receipts exceeded original targets by a cumulative €3 billion and that in 2001 they were €2.6bn short.  To a degree the charge is correct; but from where does the error stem?

It flows from the large tax cuts introduced by all the governments over the 1990s and from the fact that the whole economy of the Irish state is a creation of multinational capital, especially from the US.  We have seen the frauds that US companies have engaged in and their operations in Ireland are the result of something similar.  Their use of Ireland as a base to which to attribute profits allows them to avoid tax in their own country while meeting their liability under much lower tax rates in Ireland.  The highly speculative and bubble-like nature of the US boom has compounded the existing difficulty of measuring how much of production can actually be said to take place in the state.  In the boom time this only led to good news for the Irish exchequer but now…

Figures released by the government to the European Union under the Stability and Growth Pact forecast that the current year budgetary surplus will be 87% lower than originally planned.  A surplus of €110 million is forecast instead of one of €837m.  What worries everyone is that two years previously the surplus was €4,600 million.  One economist has therefore predicted a deficit of €2 billion next year. (IT 14/09/02)

At the end of August the Department of Finance itself reported that tax revenues were well short of their target and signalled a shortfall of €500m.  Spending targets were also exceeded as expenditure has been quoted as rising by 27% although this looks less impressive when we note that inflation in government services is around 10%.  The government proposes that average tax rates increase and that indirect taxes which hit the poorer harder should increase at twice the rate of the last four years.  The government supported by the bosses organisation IBEC and the IMF are keen that planned infrastructural spending that facilitates multinational and native capital profit making should continue as planned and the planned reduction in corporation tax from 16% to 12.5% in 2003 is not to be questioned.  Thus, all the focus has been on revenue expenditure cuts.

It is worthwhile looking beyond the sudden announcement of cuts which, while they may be no surprise to the ‘experts’, have taken ordinary working people by surprise.  How come there has been such a huge turnaround and what does it signify?

Let’s look at what happened last year.  The exchequer returns in December 2001 recorded a surplus of €650m compared to a forecast of €3,222m and this was after one off receipts of €730m from the sale of the ICC and TSB banks plus €223m from the Voluntary Disclosure Scheme.  The spring 2002 Quarterly Bulletin of the Central Bank explains what went wrong: ‘The principal reason for the Exchequer surplus being lower than Budget was tax revenue being €2,535 million less than the 2001 Budget projection.  All major tax categories performed well below Budget target.’ (page 23)  One off measures have again been employed to attempt to achieve a surplus of 0.7% of GDP in the current year. This includes €610m transfer from the Central Bank, €625 m from the Social Insurance Fund and €500 from the Capital Reserves Account.  So even after stealing from the proceeds of the great Euro change-over rip-off and from workers savings a hole in the finances has appeared and the target will most certainly not be met.

It is clear that it was a revenue shortfall that created the problem last year.  While expenditure exceeded target by almost 3% revenue fell below target by 7.7% (Central Bank Spring Quarterly Bulletin, author’s calculations).  This year, by the end of August while tax revenue was supposed to rise by 8.6% it had only risen by 1.1% and while income tax was forecast to rise by 7.2% receipts were 11.2% below what they were at this time the previous year.  Corporation tax receipts were also down on the previous year.

Far from wild government spending lying behind the crisis of public finances it is the shortfall in tax revenue that has caused the fiscal crisis and this shortfall is primarily the result of tax cuts to multinationals and the rich.

Government spending as a percentage of GDP was only 30.5% in 2000, the lowest of any country in the EU, whose average was 47.5%.  The government claim that spending per capita at €11,400 is close to the EU average and close to that shining example of public provision, the UK.  This, however, is a back-handed admission that the Irish people cannot hope to gain decent health and welfare provision from the existence of multinationals in their country since they are effectively off limits to increased taxation.  Whether the Irish state needs to be quite so generous to US multinationals is a moot point, and also beside the point.

Since 1990 government expenditure as a percentage of GDP has fallen from 41.1% to 32% in 2001 while government revenue fell from 38.3% to 33.7%.  Part of these figures result from actions more or less completely outside the governments control such as movements in the capitalist cycle of boom and recession but one analysis of that portion that is discretionary show that it is the decision to cut taxes, and not expenditure increases, that lie behind the problem.  Thus the structural component of government revenue fell by 4.6% of GDP in the period 1990 to 2001 while structural expenditure fell by 3.3%. (‘The Irish Public Finances since 1990’, David Cronin and John Scally, Spring 2002 Central Bank Quarterly Bulletin)  So the recent rise in public spending when looked at historically should not be a problem.  That it is a problem is due entirely to the fall in government revenue.



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