Notes on the Front

Prehead the oven to Gas Mark 5.  Put it in a roasting tray, season with salt and pepper and place on the middle rack.  Cook for 20 minutes a pound and when finished take it out and let it rest for a few minutes. Slice and soak in gravy.  There you have it – Fianna Fail's recipe for cooking the books. 

With Exchequer retruns heading south in a big way, Fianna Fail is still insisting that it's budget estimates are somehow attached to the real world.  They were fiction in October when they were produced, they are beyond absurd now.  Any attempt by progressives to propose an economic stimulus and recovery programme will have to take account of these hot books.  Otherwise, we end up like Fianna Fail – launching proposals on shifting sands.

It's not just that Fianna Fail under-estimated the decline in the economy, over-estimated tax revenue, completely missed the unemployment figures.  They have so refigured the budgetary tables as to magically wipe out deficits and return our finances to a healthy state.  Fiscal crisis?  What fiscal crisis?  It will be solved by 2011. Go back to sleep, Ireland.  All is well.

Yeah, right.  Let's look at the fancy footwork involved here.  In the published tables, we will have a current, day-to-day, expenditure deficit through to 2011, the last year for such projections.  These will come to €4.7 billion (2009), €5 billion (21010) and €3.3 billion in 2011. 

But don't worry, Fianna Fail has heard you – the warnings against running current deficits and, therefore, borrowing for day-to-day purposes.  In their budget tables they have introduced a new and unprecedented line:  the Cumulative Fiscal Consolidation Objective.  Just rolls off the tounge doesn't it?  What is this CFCO, for short?  Damned if I can find anything about it on the Department website or in Minister's speeches. But what it does is magically wipe out the deficit. From a shortfall of €3.3 billion in 2011, hey, presto, the deficit vanishes.  That's because they have simply penned in savings of €3.3 billion under the heading of CFCO.

What is strange is that if Fianna Fail have managed to achieve 'efficiencies, why aren't they integrated into the current expenditure tables?  And is there an element of double counting in the 'cumulative' part of the consolidation?  And does it refer to lower expenditure or higher tax revenue? Or is this all a fairy tale so you don't question if the rabbit really was in the hat before it was pulled out?  Here's the footnote in the budget tables on the CFCO – the only explanatory reference I can find:

'The indicative amounts shown for 2010 and 2011 are cumulative and represent the scale of net adjustment required across the spectrum of spending and taxation to restore the current budget to balance by the end of the period. The adjustment will be evaluated in the context of subsequent Budgets.'

Ah, now I get it.  These figures are 'indicative'.  They do not represent actual planned savings.  They only 'indicate' what is 'required' to restore the current budget to balance.  So why put them into budget projections?  I leave it to Jim O'Leary, one of the few commentators who spotted this nonsense, to describe the whole exercise:

But, most importantly, a large chunk of the adjustment required to get to that point (i.e. a balanced current budget by 2011) is completely unspecified in the sense that it is identified as neither a spending cut nor a tax increase. Instead, in a path-breaking piece of fiscal bureaucratese it is described as a "Cumulative Fiscal Consolidation Objective"! Who said this Budget was bereft of innovation?

Let's return to planet Ireland and assess the crisis we are actually in, rather than Fianna Fail-la-la-land.  Goodbody and Davy have produced their own projections to 2010.  Their conclusion is that the Government has vastly under-estimated the Exchequer deficit, so that by 2010 our current deficit will be vast and structural.

• Goodbody suggests that in 2010 we will have a current deficit of €2.3 billion worse than what the Government is projecting (€4.7 billion worse if we disregard that CFCO nonsense). 

• Davy's projections are even more ominous.  They suggest that the current deficit will be €6.5 billion worse than Government projections (€8.4 billion if the CFCO is not taken into account).

This is meltdown territory, the equivalent of radiation spreading throughout the land making the economy uninhabitalbe for years to come.  We could be facing into a situation whereby our overall debt level – currently one of the lowest in the EU-15 – could more than double within three years. 

Minister Lenihan has said there's little scope for tax increases (which is why he's not going to bring in a mini-budget – at least that's his latest comment on the subject).  Therefore, to balance the current budget by 2011 he may need to cut government expenditure by 4 percent in real terms.

If you don't think that sounds like a lot, just remember: this year's current expenditure was increased in real terms, if only by a small amount.  And look at the political fall-out – old folk and children marching in the streets.  Now if that's what happens when the Government only increases expenditure by a small amount, imagine the reaction when they start cutting and cutting significantly.

So what do we have to look forward to?  Grim times.  If Fine Gael clamour into office it could be even worse because they want to exact even more cuts.  So you better get used to it.

But it's not all thaaat bad.  I understand that mushy peas and tap water go well with cooked books.