Flying blind in the Irish recession

We got the perfect example of what's wrong with the Irish economy last week when our air traffic controllers went on strike.

The four-hour stoppage last Wednesday shut down our three main airports, grounding 150 flights. Over 20,000 passengers were affected, with missed connections, screwed up holidays, appointments abroad that could not be kept and so on.

The disruption, irritation, even misery caused to so many people -- Irish and foreign -- was considerable. But the damage done to our international reputation, especially among the business community, was perhaps even more serious. Why would anyone come here to set up a business if the air link cannot be relied on?

Since we're an island nation we are more dependent than most countries on air transport. It's a vital link, essential for everyday life and for business. So it's not something that should be interrupted in a cavalier fashion by a small group of privileged workers.

Yet that's what happened last week. The level of disregard for ordinary people and for the economy, especially in our present circumstances, was shocking.

So if the air traffic controllers felt justified in taking such action they must have a very serious grievance, right?

Well, no actually. What is bothering them is their pay (even though they are already among the highest paid air traffic controllers in the world) and their pensions (even though they already have what is probably the best air traffic controllers’ pension scheme in the world).

They are due a 6% pay rise under their last pay agreement and they are insisting on getting that, even though most workers in the Irish economy have had to forget about agreed increases, and many have had to take pay cuts to save their jobs.

One might have some sympathy for our air traffic controllers if they were badly paid by international standards. But that is not the case. Irish controllers earn far more than their counterparts in the U.S., the U.K. and most European countries.

The top 10% of Irish controllers earn between €170,000 and €230,000 a year. The average Irish controller earns €160,000.

The average pay for controllers in the U.S. last year, excluding overtime, was $109,000 (€77,000) which is half what the tin pushers in Ireland get. In the U.K., the average pay for controllers is even lower, at £60,000 (€69,000).

So it's fair to say that the 300 Irish air traffic controllers are very well paid indeed, without the extra 6% they are demanding.

It gets even more ridiculous when you look at the generous, guaranteed pension scheme they have as semi-state workers. It's non-contributory, which means it doesn't cost them anything.
But it does cost the Irish Aviation Authority (the IAA, which runs the airports here for the state) plenty. In fact the IAA pays the equivalent of 30% of every controller's salary into their pension fund every year.

For most workers in the economy, guaranteed pensions have collapsed, even after paying heavy pensions dues over the years. Yet these guys (and gals) have guaranteed generous pensions for life, for free!

The IAA wants them to start making a contribution to the pension fund (even a modest one, like other state workers recently) but they are resisting.

So this stoppage was all about money, even though these privileged, highly-paid, semi-state workers already are doing extremely well.

The spark that caused the stoppage last Wednesday was the introduction of a new air traffic controller computer program to update the service for Irish airports and make the air traffic operation more efficient. Not without our 6% pay rise, said the controllers, and they refused to operate the system. The IAA suspended 14 of them, and the rest went on strike for four hours in sympathy.

Further stoppages were threatened, but these have new been put off following the start this week of Labor Court talks between the IAA and the controllers.

In the meantime, unnerved by the public outrage against them last week, the controllers are reluctantly operating the new system. Meanwhile, we all wait to see whether the talks will prevent further stoppages and how much the controllers will get.

In most businesses I know, particularly in these difficult times, workers are eager to get their hands on new technology, new processes and new computer programs which will make them more efficient and therefore protect their jobs. They don't demand extra payments for working the new stuff. They just get on with it.

But the air traffic controllers (and many other state or semi-state workers) are different. Efficiency doesn't matter because their factory does not close down if someone else is more efficient.

Not only that, but in the case of the controllers they are a monopoly. So they have the state -- and the rest of us on this island -- by the throat. That's why they get paid so much for work that, no matter how difficult John Cusack made it look in the movie Pushing Tin, is not nearly as complicated as they like to make out.

That kind of greedy, opportunistic, cynical attitude should have no place in Ireland today, given the challenges we face. But as I said at the start, this strike by our controllers is the perfect example of what's wrong here.

There is a disconnect between large groups of state workers here and the reality that workers in the private sector of the Irish economy now face every day. Private sector workers shape up and take pay cuts to survive.

Too many state workers in Ireland are overpaid, inefficient and ready to strike at the drop of a hat and screw up the country if anyone tries to upset their cozy arrangements.

Unfortunately, the air traffic controllers are not the only state workers who are getting ready to throw out the baby with the bath water. On Monday of this week workers across many areas of the state services -- civil servants in various government departments, nurses, teachers, prison staff etc. -- started a work-to-rule in protest against the modest cuts in their pay announced in the recent budget.

With reduced tax revenue due to the recession we can no longer pay state workers here the high salaries they negotiated during the boom. The government has to reduce the budget deficit or the country will go bust, and a large part of state spending is on pay for state workers. So there has to be cuts.

The pay cuts announced in the budget in December amounted to around one billion euro. In a desperate attempt to avoid these pay cuts, the unions offered to make up most of this by taking extra days off without pay.

This would be made possible by increased productivity, they said. They promised a "transformation program" for the way state services are delivered, aimed at big increases in efficiency saving huge amounts of money.

The government was skeptical, no deal was done and the pay cuts went ahead. And now the unions are saying that the "transformation" they offered, to improve efficiency, is off the table.
But what the rest of the workers in the economy want to know is why? In the private sector, increasing efficiency on a regular basis is accepted as essential in the battle to increase Ireland's competitiveness.

The state workers have admitted that they could be much more efficient, but now say they are not willing to co-operate with any transformation program. What part of WE CAN’T AFFORD IT do they not understand?

Before all this is over, we're going to be a very divided country, split between those on the state payroll and those in private industry. The airwaves were full of angry callers on Monday denouncing the public service workers and their work-to-rule.

The general view is that they are well paid, have cushy permanent jobs, with fantastic guaranteed pensions and that they should wake up to reality and share the pain being felt by everyone else.

Several commentators here remember what Ronald Reagan did some years back when he took on the air traffic controllers in the U.S., fired them and then rehired them at reasonable pay rates. A lot of people feel that the same strategy should be used here, if they strike again.

Apart from sorting out that particular problem, it would send a message to the rest of the state sector at the same time.

Ireland, the country of empty ghost houses

Time was in Ireland when we used to bring tourists to stay in haunted castles. These days we have haunted houses of a different kind, so-called ghost estates on the outskirts of many towns around Ireland. And they're not the kind of places that tourists would want to stay in.

The new ghost estates don't actually have ghosts. They're called ghost estates because they're empty.

They are the many developments of houses and apartments built during the construction boom here which now can't be sold. And they seem to be everywhere.

They vary in size from a few dozen houses to big estates with hundreds of units, but they all have the same look of abandonment, with unsold units, half finished units, estate roads that end suddenly in dirt tracks, and piles of rubble left behind when the builder went bust.

In many of them just a few units have been sold and the residents exist in a kind of zombie land, where they often have whole streets to themselves and the only life is the weeds growing up through the unfinished pavements.

At night they have an eerie atmosphere and little lighting. It's no wonder people call them ghost estates.

They're haunted all right -- haunted by the ghost of the Celtic Tiger.

I was at a funeral last week in Deansgrange Cemetery on the Southside of Dublin. We went slowly through Leopardstown Road and later on to Sandyford, areas that used to epitomize the affluence of the Celtic Tiger, full of new apartment blocks and swish office towers with modern architectural flourishes. These are the places where people thought nothing of paying half a million for a large apartment.

We passed blocks of apartments which were almost empty, and office blocks which were completely empty and had tattered. “To Let” signs across their facades.

It was clear these apartments and offices had been unoccupied since they were built a year or two ago. And this was on the fashionable Southside of Dublin, where property once seemed like a no-brainer for the investor.

It's as bad on the unfashionable Northside of the city. A few miles in from the coast where I live is one development that typifies how crazy it got here during the boom.

A vast billion euro development of hundreds of houses and apartments, it's called Belmayne. It was launched a few years ago at the height of the property boom and attracted a lot of attention because of the sexy advertising used to suggest it was offering a sophisticated new lifestyle, in which leggy models would be draped all over your furniture.

What it actually offered was a home in a bleak area close to the M50 beltway around Dublin beside some of the most deprived housing estates on the tough Northside of the city (where there was another murder last weekend). They did sell some units -- and then the property crash kicked in.

Today just 40% of the planned 2,650 houses and apartments are occupied, even though parts of the estate were completed more than two years ago. The builder is bust and the bizarrely named Belmayne may never be finished properly.

Families who bought there have few of the facilities they were promised. Investors are letting to out of work immigrants at minimal rent.

Prices have almost halved, and everyone is deep in negative equity. It's only half finished and it's a sad, lonely place to visit.

There are smaller but similar new estates not just in Dublin, but in all the cities and many of the bigger towns around the country. The problem is particularly bad in towns within a couple of hours commuting distance from Dublin. There you find forlorn, empty estates of houses in what was farmland around these towns.

Even worse -- a real sign we went crazy -- apartment blocks were built on the edges of these sleepy towns and villages even though there was plenty of land around to build houses. Why? Because the developers could make more money from apartments, and there were enough Celtic Tiger cubs commuting from Dublin to buy them at a quarter of a million each.

Until the crash, that is. Now they are all ghost estates haunted by the ghosts of the construction bubble.

How many houses in Ireland are lying vacant? The latest figures show that there's nobody living in 18% of all the houses in the country -- almost one in five. And the problem is getting worse, as about 500 new homes per week are still being added as developers complete some estates in better areas.

These new homes in mature areas with good facilities will eventually sell. But the vast backlog of unsold units in unwanted areas in cities or remote country towns will never sell, or at least not in the foreseeable future. In some places they are thinking of knocking them and returning the land to farming.

In many commuter towns there are other problems because the local councils won't take over the estates to provide street lighting, sewage connections and other public services, until the estates have been completed in accordance with the planning permission. In many cases the builders have gone bust and residents are left in half finished estates with no services.

In some apartment developments in Dublin and other cities where a lot of the units are unsold, residents find that they are being loaded with management charges for the whole building, or that maintenance is not provided at all and their development soon starts to deteriorate.

It's a mess. And it's a mess with no solution in sight because in spite of some efforts to talk the market back into life, the reality is that the overhang of unsold units will last for four or five years, and in the meantime property prices will fall even further before they start to stabilize.

For most of us who bought our houses 10 years ago or more it's not a problem. It simply means that our pile of bricks is now worth quarter of a million instead of half a million, which is still a lot more than we paid for it.

The people who are really screwed are the younger ones who bought over the past two to four years when the bubble was at its biggest, and they paid half a million (with a mortgage) for a home that's now worth quarter of a million. These young couples work around the clock to pay their negative equity mortgages and pray they don't lose their jobs in the recession.

What all of this means is that the property market is unlikely to recover any time soon. And it's not just domestic property that has collapsed.

The commercial property market -- office blocks, shopping malls, industrial estates, hotels and so on -- has fallen just as much and has a similar overhang of unwanted and unoccupied buildings. The recession has hit commercial property hard.

It's worse here than elsewhere because during the Celtic Tiger madness we built far too much of it. Some estimates are that we have around 40% more office space than we need -- a recent survey revealed that Dublin has the highest percentage of vacant office space of 22 European cities.

And the tax driven incentives to build hotels mean that we now have an estimated 12,000 hotel rooms more than we will need even if tourism grows strongly. That's a lot of hotels we need to close down. One high profile hotel on Dublin's Southside closed a week ago, and others will go the same way.

The collapsing property market has, of course, almost wiped out the Irish banks, which had to be saved by the Irish government. It's also wiped out some of the country's biggest developers, the billionaire boys who got unimaginably rich through the construction boom, thanks to the easy credit the banks gave them.

Some of them were foolish -- or crazy -- enough to have given personal guarantees, and they now face losing everything as their former buddies in the banks turn nasty.

One of them was on the TV news here last week, a broken man admitting that he had misjudged the market and that he was now broke. He's not the only one. About half a dozen of these tycoons are in the same boat, having paid hundreds of millions at the top of the market to buy sites and build apartment blocks and housing estates that now cannot be sold.

The banks are likely to pursue them for their personal assets where they can, even though that will recoup only a fraction of the billion or so that some of them owe. Some of them could even lose their homes as well as their limos. How the mighty have fallen.

News / 300,000 houses lying empty in Ireland, including 200 'ghost estates' / Click here

News / House prices at record low in Ireland / Click here

The boom to bust decade

Greetings from the North Pole. Well, not exactly, but that's what it feels like.

For the past two weeks Ireland has been in the grip of a weather system from Siberia that has seen temperatures sink as low as minus-14 Celsius. For the past few nights, for example, it's been minus 9 or 10 across most of the country, with sleet and snow adding to the misery. And it's forecast to continue for another week at least.

We're not used to this so we don't know how to cope with it. In fact we've not really had much snow -- there's only an inch or two on the ground in most places. Yet the country has ground to a halt.

We're running out of salt and grit to make the roads passable, schools have closed for the first three days of this week, and the airports have been forced to shut several times over the past week for a few hours. And all this because of a few snow showers that would hardly be noticed in New York or Chicago.

As I said, we're not used to it (the last time we had a cold spell this bad was decades ago). So local councils here are never prepared. And the furious public have been blaming the government.

If Taoiseach (Prime Minister) Brian Cowen is feeling paranoid who could blame him? Even the weather is against him!

There was further bad news over Christmas -- on a much more serious note -- with the shocking news that the Minister for Finance Brian Lenihan has been diagnosed with cancer of the pancreas, one of the worst cancers you can get. He began chemotherapy a few days ago and has the good wishes and prayers of the whole country behind him.

Obviously this is a terrible blow for his family, but it is also a serious blow for the country since he is seen as the only politician with the requisite ability and courage to get us through the catastrophic economic mess we are in. He says he intends to continue working while undergoing treatment, but it's not going to be easy for him.

Added to all that has been the relentless recession, deeper here than in any other European country, with retail sales way down over the holiday period and unemployment numbers again rising. The very latest figures here show that one in every three males under 25 is now on welfare.

So it's been a miserable Christmas. But this being the first issue of the Irish Voice of 2010, it's time to look back beyond Christmas to review the past year and add up the national scorecard for 2009.

And yes, it's a big F -- F for Fail or Flunk or whatever you guys call it over there. It's been a year when not only the Irish economy but the Irish state came very close to total failure, to complete collapse.

This is also the start of a new decade, so it's appropriate to look back over the last decade in Ireland. In fact it's necessary to do so to see how we got ourselves into the mess that reached crisis point over the past year.

By any measure, 2009 was an extraordinary year here, and the 2000s (the noughties) were an extraordinary decade. The decade saw monumental changes, more than in any other recent decade.

I don't say that lightly. I've been working as a journalist since 1970, which is four decades ago now, and the changes we have seen in the past decade are on a different scale.

The noughties saw Ireland emerge as a place where everyone seemed to have a second home, or an apartment in Bulgaria, an SUV, a massive flat screen TV, kids in fee paying schools and a few hundred euro to spend on an average night out.

The Irish economy, once the poor man of Europe, heated up so much we were growing at 9% or 10% a year when even Germany and the U.S. could only manage 2% or 3%.

It was mad, of course, but it was a divine madness. Two or three foreign holidays a year, so what was not to like?

And as we lay in the sun we calculated how much our houses were increasing in value every year. Perfectly ordinary family homes in mature areas around Dublin were suddenly worth a million. We were all millionaires!

Everyone was swept along, from the CEOs on their million-plus salaries to the blocklayers and plumbers who would not take a job for less than a thousand a week. After tax.

It was crazy, but we did not call it that. We called it the Celtic Tiger.

I do remember writing here a couple of years back that it seemed strange that the economy was still booming even though we were losing all our manufacturing jobs to cheaper countries. I particularly remember commenting in this page about the absurdity of a property boom in which we were building thousands of new homes to sell to immigrants who were coming in here to work in construction. It was a bubble and most people knew it, yet we clung to the hope that we could keep blowing it up without it bursting.

It was a decade of greed and stupidity, and looking back now it's extremely embarrassing. We can blame the U.S. for letting Lehmans go under, we can blame the global financial collapse, we can blame the Man Above, or right now we can blame even the weather.

But there's only one place the blame needs to go, and that's right here. The reason the collapse is worse here -- much worse -- is because Ireland was more stupid and more greedy than anywhere else. And over the past year we have started to pay the price.

We will go on paying the price in 2010 and for at least another two or three years into the future because that's how far things have got out of line here and how long it will take us to readjust. There are big two problems, our lack of competitiveness and our budget deficit.

Government spending here soared during the Celtic Tiger as the boom brought in massive tax revenue. Now that our property bubble has burst and our economy has tanked, tax revenue has collapsed so that it covers just over half of government spending.

Getting that back under control meant huge cutbacks in state spending in the recent budget, and there will be similar cutbacks in the next two budgets. That impacts on state services and will be felt by everyone here as a noticeable reduction in our standard of living.

One of the problems in getting state spending back under control is the huge jump in unemployment (now up to 14% and still rising) which is putting so many people on welfare. And that is related to something else that happened here during the Celtic Tiger years -- our serious loss of competitiveness.

Pay rates and salaries soared during the boom and that fed into the cost of everything else here, from the coffee you bought on the way to work to the electricity used to power your computer or your cement mixer. We went from being a hugely attractive country for multinational companies to set up in, to one where everything was ridiculously expensive. Manufacturing, transport, the general costs of doing business here all went haywire and multinational -- and Irish -- companies reacted by shifting their plants abroad. Many of the high profile cases -- like the loss of the huge Dell plant in Limerick or the decision to manufacture "Waterford" glass in Eastern Europe -- were covered in this page.

But it wasn't just the high profile cases -- it was the ordinary manufacturing plants which closed down week after week, month after month as Ireland's manufacturing industries died. In the end we were left with a huge property bubble, which eventually burst.

Getting that competitiveness back is the biggest challenge that now faces us, both in 2010 and in the years ahead. If we can get that right, we have a chance.

If we don't, or won't, then expect to see many more young Irish where you are in the days to come. Happy New Year ... we hope.

Catholic Church has lost all credibility, making me a pagan in Ireland

Good pagan that I am, I don't darken the door of my local church from one end of the year to the next. But Christmas is different.

You need the little bit of religion at Christmas time. There's something about going to church on Christmas morning that makes the day complete, even for us atheists and agnostics.

For my teenagers it's a glimpse into a weird world of ritual, of men in frocks and old folk on their knees mumbling strange incantations. At least that's how they see it. It's like stepping into Harry Potter, one of the teens told me last year.

But for me it's a nostalgic journey into the past, evoking deep memories from boyhood days in a small country town, memories of the way we were way back when everything was simpler and somehow more alive.

It all comes flooding back, the early start, the crunch of feet on the icy path, the crib in the nave of the church, the Happy Christmases in the church yard afterwards as neighbors shook hands, and then the quick walk home and opening the door to the smell of the rashers already spitting on the pan.

We used to do midnight Mass when I was a young teenager, but my mother disapproved because a few of the congregation always went straight from the pub to the church and then lacked the requisite reverence.

I can remember at one Christmas Eve midnight Mass the priest intoning the line about the Lamb of God and being answered by a chorus of Baa! Baa! from the boyos in the balcony. A few minutes later someone dropped a bottle of beer at the top of the balcony staircase and it slowly rattled its way down every step to the bottom. The priest paused the ceremony, turned around and glared, and you could have cut the silence with a knife.

We thought it was brilliant drama and wanted to go back the following year. But from then on it was Christmas morning Mass for our family.

Eventually, of course, we all left home and lost our religion. As students in the radical sixties and seventies, all that crazy stuff about the immaculate conception and transubstantiation was too ridiculous to be taken seriously.

But every Christmas, when we all gathered at home, we went to Christmas morning Mass like true believers because it was part of our growing up, part of what we were.

So for old time's sake -- and to give my own kids the experience -- I still insist on going to church on Christmas morning. We don't limit ourselves to the local Catholic Church. The Protestant Church of Ireland service is much better.

Instead of the muttering and moaning of an interminable mass, the Protestant service is all joyful hymns and carols, with a few prayers in between the singing. It's lively and uplifting.

Mind you, the kids this year say they want to go back to the Catholic Church this Christmas. The Mass is much more mysterious, they say. And you can get Communion!

Maybe we'll go back this year. Because the way the Catholic Church is going here, it may not be around much longer. If it's not gone altogether, it could well be reduced to a small rump by the time my kids have kids of their own to bring to church on Christmas morning.

The recent publication of the state commission of inquiry into the behavior of priests and bishops in the Dublin diocese since 1975 has been a tipping point as far as the Catholic Church in Ireland is concerned. The outcome has rocked the church, not just in Dublin but throughout the country.

It is the second inquiry of its kind here, since the accusations about clerical sexual abuse in Ireland started to snowball about 10 years ago. The first was the inquiry in Wexford and that was shocking.

But the scale and depravity and then the cover-up revealed by the Dublin inquiry is far worse. Dozens of priests were implicated, successive bishops knew what was happening, yet it went on and on.

The numerous abusing priests were shifted from one parish to another when complaints arose, leaving them free to abuse again.

The priority of the church was always to protect itself, even if it meant children continued to suffer.

In the Dublin diocese, which is so big that it has an archbishop at the top and auxiliary bishops as well, meetings between the bishops were held on a monthly basis, and it is hard to believe that the problem of abusing priests would not have been discussed.

The report makes clear that all the archbishops over the past 30 years or more knew what was going on, yet did nothing effective to stop it.

The present archbishop is in the clear because of the new procedures put in place in the recent past for protecting children, part of which means immediate reporting of accusations of abuse by priests to the police. That's a big change from previous decades when the church dealt with these matters itself, under canon law.

But the present archbishop's predecessor, still alive but now retired, is implicated in the cover-up, as are the auxiliary bishops who served under him and are now full bishops in other dioceses around Ireland. One of them has already resigned, after a trip to Rome to consult the Pope, and the other three are hanging on by their fingertips.

As I said, this is a tipping point for the Catholic Church in Ireland. It's a crisis that has shaken the Irish Catholic Church to its foundations and damaged its reputation and standing, perhaps permanently.

One indication of the sea change in attitude to the church is the way people here are now questioning everything. Is it right that the local bishop should be the patron of all the Catholic schools in the area if the church cannot be trusted with children? Should people be taking moral guidance from bishops when the culture in the church was corrupt?

The old deference is now completely gone. The Minister for Foreign Affairs Micheal Martin, for example, publicly criticized the failure of the Papal Nuncio to cooperate with the commission of inquiry and provide access to church files, something which the judge who ran the inquiry commented on. It's a long way from the days when government ministers here used to sink to their knees to kiss the bishop's ring.

This end to the deference and respect that used to be shown to the church is not confined to senior figures like government ministers. Ordinary people -- with the exception of the elderly faithful -- have been scathing in TV news interviews not only about how the church behaved in Dublin, but about the decades of orchestrated cover-up.

The cover-up by bishops is seen by most people as being almost as bad as the abuse perpetrated by so many priests because it left those priests free to abuse again.

The media has been full of calls for bishops to resign, an unprecedented change in attitudes here. And it could get worse for the church because the five-year inquiry in the Dublin diocese is unlikely to be the end of it.

Wexford and Dublin have been dealt with. But what about all the other dioceses in the country?

Given the culture of concealment in the Irish Catholic Church over the last few decades, the presumption must be that all the other dioceses will be just as rotten. There is no reason to think that Wexford and Dublin were aberrations and that everywhere else was okay.

Of course the problem with the Catholic Church goes far beyond these latest revelations in Ireland. It goes right back to the life denying, sex denying, guilt laden culture that permeates the whole institution, the lack of women priests, the lack of married male priests, the whole system that shoved young men into seminaries at a very young age.

With minimal contact with girls and their sexual development arrested in early boyhood, is it any wonder that so many of these priests went on to experiment sexually with children, to be child abusers?

You can suppress sex for so long, but eventually, as Freud correctly insists, it will always find a way out in some form, normal or perverted.

Our tragedy in Ireland was that the suppression by the Catholic Church of a normal healthy attitude to sex was worse here than elsewhere. And the consequences, inevitably, have been worse, a terrible price paid by so many abused children here.

That's a big subject and one we will explore in due course in this column. But it's not one for now, a few days before Christmas.

The Christian message in its pure original form is still one of great merit. And the story of the Nativity and the Baby Jesus is still one that connects with children at this time around the world. I can see it in the eyes of my own kids, even though they have been sent to a non-denominational school and educated to be free thinkers.

Like me, there will be a lot of people in Ireland going to other churches this Christmas. And many of those who go to a Catholic Church will be doing so with a heavy heart.

The first budget cut is the deepest for the Irish public

Given the cutbacks in last week's budget in Ireland, the reaction so far has been surprisingly muted.

It was the toughest budget ever here, with welfare payments cut, the earnings of everyone on the state payroll cut for the second time in a year, and other reductions in state spending that will have a negative impact on the standard of living of almost every citizen.

It was the kind of budget that should have caused uproar. But it didn't.

Why? Well, there are several reasons.

The main reason is that the government had conditioned people to the bad news over the past two weeks. Almost all the cutbacks in the budget had been leaked to the papers in advance, drip-fed to the media in a deliberate softening up process. So when the full details were revealed on budget day the shocking news was no surprise, and not much of a shock either.

The other reason people accepted the cutbacks so calmly was that by now everyone here understands that our budget deficit has to be fixed or else the country will go bankrupt. It's been explained so often in the past few months that everyone here gets it.

We're spending $78.5) billion this year and only taking in $46.5 billion in taxes. No business or household can have a gap like that between spending and income and hope to survive more than a few years. And a country is no different.

Our problem stems from the massive expansion in state spending here during the boom years. The Irish state is still spending at that level even though tax revenue has collapsed over the past two years.

That means state spending now has to be cut back severely, and that was what this budget was all about. The government has not run out of compassion. It has run out of money. And it is a tribute to the good sense of most people in Ireland that they understand that, even though the cutbacks are distressing for some.

As I have explained in this column already, since our property bubble burst in 2008 and our tax revenue started to collapse, we have been paying half our bills with money borrowed from the European Central Bank. To keep the support of the EU we had to agree a program to reduce our budget deficit, and the first step was a €4($5.8) billion cut in the deficit in this budget, to be followed by more billions in cuts each year over the next three or four years.

This program was agreed by our government, but the main opposition parties also accepted it because there is no alternative. We can argue about the detail of how to reduce the deficit, but the need to cut it right back is accepted by everyone, even the Labor Party and Sinn Fein.

In headline terms this year's budget made $5.8 billion worth of savings as follows (in round figures) -- $1.5 billion each from the state payroll, welfare, capital programs and departmental spending.

As predicted here last week, the state payroll cuts were led by Taoiseach (Prime Minister) Brian Cowen and his ministers, with pay cuts of 20% and 15% respectively, although this included the previous 10% voluntary pay cut they took a year ago.

In spite of this example, the loudest immediate reaction was from state workers (teachers, nurses, police, army, civil servants, etc.), some of whom are already threatening to strike.

One can understand that they feel sore since they have already been hit with a 7% cut within the past year. Their pay will now be cut as follows – 5% on the first $43,600, 7.5% on the next $58,000 and 10% on the next $80,000 with a top rate of 15% on those earning in excess of $291,000.

It's a substantial further cut, and it will be hard for the 40% of state workers who are low earners, a lot of whom would be young and would include those who bought into the property market during the boom and are now in negative equity.

But overall there is little public sympathy for them because they have what workers in the rest of the economy don't have -- secure jobs and guaranteed pensions.

And there is also the inconvenient fact that pay for state workers was on average 20% higher than pay for workers in the rest of the economy, and also that most state workers had a 35-hour week, whereas private sector workers were on average doing a 38 hour week.

In spite of this, there is a good chance of strikes by state sector workers in 2010 as the cuts start to bite. A lot of them are in cloud cuckoo land because the rest of the country will be enraged if they shut down services. So the government has a difficult few months ahead.

The other part of the budget which caused the most grief was the cut in welfare. Again, one can have sympathy with those at the sharp end. But the exaggeration of the size and effect of the cuts by the usual lefty commentators was hard to take.

The fact is that Ireland has a generous and extensive social welfare system. The cuts are relatively modest and are only a little ahead of the fall in the cost of living.

Let's look at some examples. The payment to those out of work (what Americans call welfare, we used to call the dole and now call jobseekers allowance) was $297 and is now $285 a week. That's a cut of $12, or about 4% -- hardly enough to warrant the cries of outrage and despair that were heard last week.

There were also cuts in child benefit which is paid for every child in the country and is not taxed or means tested. The payment was cut by $23 a month (down from $241 to $218 for the first child).

A family with three children was getting $778 a month and will now get $708. Again, difficult for some families but manageable for most. But the reaction from some lefty commentators was off the scale.

The media here lapped it up, featuring examples of single mothers with four or five children and calculating how much they will lose. Of course no one dares ask politically incorrect questions like why a single mum has four or five kids or where the father(s) are, and why they are not paying maintenance.

The fact is that a single mum with no job and four kids will (even after this budget) be getting a one parent family payment of 196 euros a week, plus child benefit of $999 a month and will also probably be getting other payments like rent allowance (typically around $1,308 a month), fuel allowance (to pay for heating in winter), back to school allowance (for clothes and books for the kids at the start of the school year) plus other payments as well if she can show she needs them. It would be usual for a family like this to be getting $3,634 - $4,361 a month in state handouts.

No one is saying it should not be like this, but some of the reaction to the cuts in welfare in the Budget -- averaging 4% -- were so hysterical that you would think we had no welfare system left at all.

That said, there are some sections of the public (like those who care full time for a disabled relative and get a carer's allowance) where even a cut of 4% is very hard. It would have been better to tax the child benefit going to well off people than do that, but there are complex administrative and legal reasons why this is difficult to do in the short term.

Another cut that attracted a lot of comment was the change in payments for the young jobless. Those aged 18 and 19 get $150 a week. Those aged 20 and 21 used to get $296 a week, but that has now been chopped to the same $150 a week, unless they take part in retraining schemes run by the state.

It has been pointed out that there is a long waiting list for some of these training schemes, and that the cut is forcing these young adults back to live with their parents or else into emigration.

There is some truth in this. But it is also true that some of the young adults in question were making little attempt either to get retrained or to find a job, either in Ireland or abroad. They were choosing not to take low paid jobs (the kind now being filled by foreigners) because they preferred to live on their $296 a week handout.

It is important for the state not to encourage this mindset, which can all too easily translate into a long-term attitude. All through the boom there were thousands of long term unemployed here.

We could afford it then. We can't afford it now.

A wider argument about the budget was that in general it hit those on low incomes and reduced benefits to those with no incomes instead of taking much more from the high earners. But marginal taxes for middle and high earners here are already over 50%, and pushing them much higher will drive key people out.

Putting very high taxes on a few people was never going to solve our problem. Action had to be taken on the spending side and that meant cuts. And by spreading the cuts across all benefits, it was possible to keep the reduction to an average 4%.

In a country where welfare benefits only ever went one way -- up -- it has been a shock. But it's not nearly as bad as you might think reading the headlines here.

Cowen's leadership put to the test as Irish 'dead cat' bounces

October 2, 2009, 11:41 AM

You may be familiar with the term "dead cat bounce," beloved of stock market traders. They use it to describe the phenomenon of a share price that falls to the floor, then recovers somewhat for a while, before falling back to the floor again and staying there.

It's a dead cat bounce. Like when you throw a dead cat out a window to the street far below. It bounces when it hits the ground. But that doesn't mean it's alive again.

Well, there's a very dead cat in the air in Ireland at the moment. And it's fostering a feeling of well being and business-as-usual.

It's giving people the misplaced hope that maybe this crisis is not so bad after all, that we will be able to get through it without really feeling any pain.

In the last week or two the leaders of the Irish banks have been making positive statements about their future, following a modest recovery in bank shares. This only happened because the National Asset Management Agency (NAMA) is about to take their mountain of bad debts away at a reasonable price.

The truth is that without NAMA our banks are bust. And even with NAMA, the government is still going to have to dig deep into taxpayers' pockets to recapitalize them again, after recapitalizing them the first time just months ago.

And it's not just the bankers who are pushing the positive spin. The politicians are at it as well, although at least they have an excuse because they have to get the Lisbon referendum passed this Friday.

All the spin in the world won't alter the truth, however. The truth is we face an enormous economic problem, and the way out of the mess involves severe and unavoidable pain for everyone.

The state is spending over €60 billion a year but only getting in €40 billion in revenue. The collapse of our property bubble and the consequent deep recession in the economy has shrunk tax revenue -- but the state is still spending like it did during the boom.

That's because cutting state services is very difficult. But it simply can't go on.

So new taxes or savage cuts in state spending are necessary to stop the country going bust like the banks. Taxes went up in the last budget and in the emergency budget.

A few weeks ago the politicians were saying that next time the emphasis would have to be on cuts. They even put a figure on it -- *€4 billion to be cut in the year ahead, and the same again the year after and a few billion in the years after that.

That level of cuts is hard to comprehend. It's impossible to do without impacting very heavily on the state services that everyone now takes for granted -- schools, hospitals, welfare, transport and so on.

And above all, it will have painful consequences for state workers and their high levels of pay and pensions which now account for over a third of all state spending.

To help identify where the cuts are to be made, the government set up Bord Snip and its report was made a couple of months ago. Its chairman Colm McCarthy revealed that we were now borrowing €400 million a week to maintain the day to day running of the state and maintain services. He identified a list of cuts that could be made across all areas of state spending.

Shortly after that the Taxation Commission reported on what we needed to do to reform our tax system. Over recent years our tax system has become complex and cumbersome, with exceptions and exclusions that make it inefficient and let too many rich people off the hook.

We badly need a simpler and fairer system. And we also need a system that will bring in more revenue.

The independent Commission on Taxation has been working away on this for some years, and it is fortuitous that its report came when it did recently. One of the main proposals was for a property tax, something which any sane person knows we should have, even if no one wants to pay it.

The government reacted to both these reports in somber tones, saying it was going to be tough but there was no alternative. The government is still saying that €4 billion has to be cut in the next budget, a figure agreed with the European Union which is supporting us through this crisis.

But in the past week or two the mood music coming from Taoiseach (Prime Minister) Brian Cowen and individual ministers has changed key. It's now more upbeat.

It started with Cowen saying that he was looking at the changes recommended in the Taxation Commission report as a long term project. Something to be achieved over a number of years, he said.

And it's the same with the McCarthy report on the cutbacks in spending. Several ministers have said they oppose some of the proposed cuts, and the Tanaiste (Deputy Prime Minister) Mary Coughlan even said that there are many things wrong with the Bord Snip proposals.

So little by little, the momentum for change that had built up has dissipated. The sense of urgency about making cuts to start us on the long road to balancing the state's books has gone. There is a lot of talk, but no action.

It's months since the McCarthy report appeared and NOTHING has been done. And meanwhile, with every week that passes, we're another €400 million in the red.

The national mood has not been helped by the culture that pervades at senior levels in politics, the civil service and state run organizations here. It's a culture of high salaries and lavish expenses.

The line “Because We're Worth It” could have been invented for these guys. Their attitude is that nothing but the best is good enough for Irish officials, and because it's taxpayers' money it's a bottomless pit. So they spend and spend.

There has been a huge dispute in the past couple of weeks over Rody Molloy, the former head of the national training organization FAS, and the lavish expenses regime he presided over in a body that is supposed to be helping unemployed people get jobs. The shocking details are on Irish media Web sites.

Also there are the details of the scandalous spending of the present chairman of the Dail (Parliament) when he was a minister. Some of the limo and five-star hotel stuff he got up to is unbelievable.

But the truth is that these two were by no means alone. During the boom delusions of grandeur were common among senior people on the state payroll.

And many of them still have not changed their behavior. The dead cat bounce atmosphere at the moment is encouraging them to continue their lavish spending.

Meanwhile, the same attitude prevails at lower levels in the state sector. The powerful state sector unions are preparing to fight any attempt to cut the pay levels and pensions of their members.

Their pay is now 25 percent higher than the average private worker, the guy whose taxes pays them in the first place. And their state-guaranteed, index-linked pensions are the envy of private workers, many of whom have seen their pensions wiped out by the stock market crash.

Yet the state workers are unwilling to share the pain. What they have, they intend to hold.

They are trying to claim that the recent pension levy taken out of their earnings was a pay cut. It wasn't. It was simply an attempt to get them to pay a fraction of the real cost of their pensions, which would cost millions if a private sector worker wanted to buy a similar pension on the open market.

State workers in Ireland at all levels earn far more than their counterparts in Britain, for example, and no one knows why. Certainly no one would claim that services here are better than in the U.K.

We drifted into this situation in the good times when the national pay deals gave huge increases to everyone. That is now being reversed in private industry and private services here, where workers are taking deep pay cuts to keep their jobs.

But there is no sign of any give among the state workers. This is why we have one of the highest cost economies in Europe, and as a result are losing jobs so fast it makes your head spin.

Power plant workers are paid so much that electricity costs here are way above the European average, for example. Why? Because they have an effective state monopoly.

We have to change all this for two reasons. First, if we don't change, Ireland will go bust and the IMF will be in here on a slash mission to balance the books.

And second, if we don't change, private sector workers will continue to lose jobs and the pot of revenue to pay for state services will be even smaller.

It's a huge test of leadership for Cowen. It appeared that he was up for the challenge a couple of months ago.

But now all the signals indicate a failure of will, a lack of courage. As soon as Lisbon is out of the way on Friday he needs to take action. He should have done it after the Bord Snip report was released a couple of months back.

There is no reason to wait for the budget. Every day that passes is another day lost, gazing at the dead cat floating in mid-air.

Dentists and state workers clean up in Ireland as rest of us suffer economic crisis

October 15, 2009, 8:52 AM

Last week I brought my two 16-year-old sons (twins) for their six monthly dental check-up. Amazingly, in view of all the tooth destroying garbage they eat, no fillings were necessary.

So apart from the careful visual check which took three or four minutes each, they had their teeth thoroughly cleaned with that high speed gizmo that dentists use which took another five or six minutes each, and they were done. Relief all round.

Total time in the chair was about 10 minutes each. The cost? €80. And that's €80 each, not for the two of them.

At that rate (even allowing for coffee breaks) our Dublin dentist is on well over €300 an hour or €2,000 a day, or €10,000 ($14,000) a week.

On the way out I tried to pay the receptionist with a credit card. Sorry, cash or check only, I was told, and I got the distinct impression that cash was much preferred. The helpful receptionist even told me where the nearest ATM was!

Now you may think this story is mildly shocking, but in fact there is nothing remarkable about an experience like this in Dublin. Our dentist is no different to all the other members of the elite here, the professionals (doctors, dentists, lawyers, etc.), the senior civil servants, the managers of state organizations, the executives in private business and so on.

They all exist in a sort of parallel Ireland, where no bust has happened and they can go on charging the same level of fees, salaries and expenses they did at the height of the boom.

This elite layer at the top of Irish society used to include architects and construction engineers and even tradesmen like plumbers and carpenters, all of whom used to charge crazy fees during the boom.

The property crash has put a stop to that group, of course, but the rest of the elite here are still behaving like the Celtic Tiger is still roaring. A recent survey showed that most doctors, dentists and lawyers have not dropped their fees in spite of endless government warnings that we all need to cut back to make Ireland competitive again.

This attitude is most evident in the state sector. In private industry, executives are sharing the pain with their ordinary workers, although a 10 percent pay cut is more bearable if you're earning €500,000 instead of €50,000!

But in the state sector, even though the state finances are in crisis because tax revenue has fallen through the floor, the change in pay (and attitude) is very slow in coming. The limo on call, plush hotel, good restaurants and lavish expenses are still the expectation of the elite who never worried before where the state money came from, and still don't.

This attitude has caused absolute fury among ordinary people here following several weeks of reports in the media about the way tax money is wasted by the state-paid elite.

This week we are seeing the first victim of the outrage. The ceann comhairle (speaker) of the Dail (Parliament), John "Limo" O'Donoghue, is being forced to resign because of his wild spending while on state business.

But it's not just him. Week after week, the media have been digging up unbelievable examples of splurging in the state sector.

Ironically, some of the worst examples have been among the senior people in FAS, the state organization set up to help retrain the unemployed. But politicians and senior civil servants in all areas (and a few top union officials as well) have been guilty of throwing around state money.

In the days when the economy was booming no one noticed this. But now that the bust has happened and ordinary people are struggling, the ongoing revelations about the higher ups in the state sector behaving like Arab princes have appalled every taxpayer here.

One example that emerged in the past few days shows how deeply rooted the problem is. We all expect overspending among the cowboys in Fianna Fail, but this one concerned Fianna Fail’s coalition partners the Green Party, which regards itself as morally superior to everyone else and believes wasting anything, including state money, is unacceptable.

The leader of the Greens, John Gormley, attended a conference in Wales recently and decided to reduce his carbon footprint by taking the ferry from Dublin to Holyhead in Wales before traveling on to the conference at the other end of Wales by car. So Gormley got the ferry and, because he is a government minister, the Irish Embassy in London organized a car to met him in Holyhead.

All of which sounds fine, except that the car was a chauffeur-driven limo that was hired in London and driven the 300 miles to Holyhead to meet the minister. The driver took Gormley to the conference and, two days later, back to Holyhead.

The limo trip cost the Irish taxpayer €2,200, and all those car miles in a big limo probably produced a lot of those carbon emissions that the Greens want us all to reduce.

When this emerged last week there were red faces all round. Gormley said he knew nothing about the travel arrangements. The booking was made by the Irish Embassy in London.

But why was a small car not hired in Holyhead, a busy ferry port? Why all those wasted miles for a big limo? Why?

Because the state-paid minion in the London Embassy who organized this could not be bothered trying to save money. He (or she) hired the limo from the usual place because it was the simplest thing to do, and no one cares about the cost anyway. It's state money and the state is a bottomless pit, right?

Like with my dentist there is nothing unusual in this story, because so many people on the state payroll here have been doing the same thing, lashing money around like we were as rich as Germany instead of a poor little island hanging off the edge of Europe. This culture of entitlement, of always ordering the best and never considering the cost, has become engrained among the elite here.

It was an embarrassing story for the Greens and it had particular relevance over the past few days because the Greens were holding a special conference last weekend to see if they would continue in government with Fianna Fail.

The Greens have just a few Dail deputies, but they hold the balance of power. The next election is not until 2012, and so much has changed since Bertie Ahern brought them into the coalition that they felt they needed a renewed mandate from their members.

So at the end of last week they negotiated a changed program for government with Fianna Fail, and the Green party members met at the weekend to approve that and the NAMA plan to rescue the Irish banks.

Leaving aside the absurdity of a few hundred members of the brown rice brigade deciding the future of the country, the "new program" they were voting on was naive and contradictory to the point of being dangerous. Needless to say they accepted it, because like Fianna Fail they know if there was an election now they would be annihilated.

The program actually contained very little of real substance. There are to be water charges at some point, some kind of carbon tax and some kind of limits on tax loopholes for the wealthy among other things. It's finger in the dyke stuff, vague and hopelessly inadequate in terms of the huge budgetary problems the country faces.

Even worse was the way the program avoided the core problem facing us -- the need to bridge the huge gap between state spending and tax revenue that has opened up here after the property collapse. We're spending over €55 billion and getting around €32 billion in tax, and the figures keep getting worse.

The shortfall has to be borrowed and that cannot continue or we really will go bust. And there are no easy answers.

One-third of all state spending goes on welfare payments and another one-third on pay for state workers, so there has to be major cuts in those areas if we are to start getting the budget back in line.

The money to keep us going in the meantime is coming from the European Central Bank, and we have agreed with the European Union to a program of cuts over the next three or four years - this year we have to cut a whopping €4 billion from state spending.

What did the Greens have to say about this? Nothing.

What did they have to say about the real hot potato, the necessity to cut state sector pay and pensions, which are very high by British and European standards? Nothing.

They did agree that the government must reduce the cost of the state services, but at the same time they promised to employ more, not fewer, state workers. Because they think education is important (don't we all) they promised to hire 500 extra school teachers and to dump the plan Fianna Fail was working on to reintroduce university fees.

They did this without making any proposals on teacher pay, even though the average teacher here earns 30 percent more than in Britain, and university staff in Ireland are among the highest paid in Europe.

How are the Greens going to plug the gap in the state finances? "We will stabilize the public finances through a combination of taxation and expenditure savings," they say. Which tells us nothing.

So at the very time when real leadership is needed here to get the population to face up to the tough choices ahead, the Greens give us waffle. They have no detailed proposals about the deep cuts we need to make to restore our competitiveness and protect jobs in the real - not state - economy.

At the very time when we need to wake up to reality and cut back on state spending before the International Monetary Fund (IMF) comes in, the Greens carry on as before. I wonder is our dentist a party member?