Lenihan’s winks will be as important as his nods

Lenihan has a couple of jobs to do today the main two are the economic one and the other political. The economic job can be divided into two one the very immediate deficit and the other the longer term task of closing the overall deficit. The political job is also twofold to convince people that he has been fair and that similar to the second economic one that he has an overall long term goal and that the government has the ability to carry it through.

It is also likely that the budget will encompass a number of signals about measures that won’t actually happen until later, much later in some cases. One signal might be that social welfare will be constantly “under review” in the light of changes in the cost of living, this would have the dual intention of surviving notice that reductions may be on the cards but without the hard facts that people can concretely object to. I would imagine other measures that will be winked at would be a property based local tax, the means testing or limiting of access to child benefit, an statement about expected revenue from 3rd level fees but not the form of them and the broad problem of funding pensions in both the public and private sector. But we probably won’t see actual action on those today. The fact that we are now looking at only a €3.5 Billion figure is a clear indication of the trap that the government were trying to get the opposition to fall into over the last few weeks, what they had hoped would happen was that the opposition would produce harsh proposals to bridge the much larger target figure that was being floated of 5/6 Billion and that the government backbenchers could castigate the opposition and then this would make their own measures look all the more palatable to the public. Instead the opposition talked about the lack of detail on the target and focused their energies on the big picture multi-annual aspect.

The government too must give a long term picture today of not alone how it sees things panning out over the next few years but how that will happen. So simply saying we will reduce the deficit by 4 Billion next year and 3 Billion the year after won’t be enough for the markets. They will want to know the ‘how’ that will happen, and that’s where I suspect ball park figures for say a property related tax would emerge.

I would also suspect an announcement that in some form the NTMA will be opening negotiations with the banks about operating some sort of joint venture that would have the end result of toxic loans and the associated assets being absorbed into NTMA management. It might be a real opportunity for a state agency to end up owning lots of development land around Dublin, we might actually get some proper planned development for once.

So today will not just be about the immediate €3.5 Billion number it will be about the plan for the rest of the deficit. And that in the longer term is more important.

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