400m yoyos a week is a lot of money. How long can Ireland stay in the Euro before it buckles under the pressure? One interest rate for such disparate economies seems like such a silly idea, and now it is taking it’s toll on the weaker ones. How long will the powerhouses of the eurozone wish to bail out the poor?
THE Government will have to examine increasing the retirement age in a bid to deal with rapidly escalating pension costs, An Bord Snip chairman Colm McCarthy warned yesterday.
The sharp increase in life expectancy is becoming “hugely costly” and creating “huge problems” for State pension schemes, the economist said.
“What people have concluded is that something’s got to give,” he added.
“If you suddenly have a big increase in longevity, either you have to have higher taxes to finance the schemes, much higher saving rates across the sector in pension schemes or an increase in the retirement age.
“You’ve got to have one of those three, so schemes don’t go bust,” Mr McCarthy said.
His 221-page report did not recommend a new retirement age, but the chairman stressed: “It’s all very well saying ‘Let’s all retire at 65’ and the State will pay the pensions for a few years afterwards.
“If people used to snuff it at 70, but have decided to snuff it at 85 and 90, well then something’s got to give.
“There either has to be huge increases in taxes to pay for this or huge increases in saving rates in private funded schemes. If people are unhappy with either of those, it seems to be the obvious alternative is an increase in retirement ages.”
Outlining his €5bn cutbacks blitz yesterday afternoon, Mr McCarthy said there had been a period of “extraordinary increases” in public spending, with the budgets increasing by 138pc in real terms.
The Government is now borrowing €400m a week to maintain current level of spending, the chairman said.
“Even after [last year’s corrective measures by the Government], we’re going to borrow through the balance of this year at the rate of €400m a week. That’s what we’ve been borrowing in 2009 . . . and we’ve been borrowing it at a penalty interest,” he said.
“Ireland is now paying the highest margin over Germany of any Eurozone country, recently we’ve been paying 220 basis points, which is two and a bit percent more than Germany on 10-year bonds. A couple of years ago we were paying the same as Germany on 10-year bonds. The penalty interest rate that we’re now paying is bigger than anybody else’s.”
Having recommended up to €1.8bn in social welfare cutbacks, the economist claimed it was “not true” to argue that social welfare cuts only affect the poorest in society.
Child benefit payments, costing over €2bn per annum, go to everybody regardless of income.
“The Irish social welfare budget is not a silver bullet that’s targeted at the very poorest people. That’s a myth,” he said at a briefing in the Department of Finance.
Defending his decision to recommend a 5pc cut across the board in social welfare payments, in a bid to save €850m, Mr McCarthy said that when a 3pc increase was announced in October, the Minister for Finance had estimated a rate of inflation of around 2.5pc.
But the cost of living has fallen since then, so reducing the rates of social welfare will simply bring them back to the levels of summer 2008, he said.
On the subject of selling off any State properties that are surplus to requirements, Mr McCarthy claimed the Government should have flogged the properties at the height of the property boom in 2006.
“We had a credit-fuelled property bubble which is now over . . . but that doesn’t mean they shouldn’t flog them (the properties) now,” he said.
In proposing a culling of 17,000 public service jobs, the economist claimed there was a need for greater flexibility in staff redeployment.
He said he was not suggesting that someone working in Wexford should be obliged to move to Donegal and claimed that, in some cases, workers wouldn’t move two blocks up the road for a different job.
During its “long and hard” discussions about axing the number of TDs, Mr McCarthy said the committee had been conscious of the “anti-politics attitude” which now exists in the country.
His cost-cutting committee had to stand back from the “populist mindset” in assessing the numbers and decided against recommending a decrease. But Mr McCarthy said abolishing the Seanad would result in savings of €25m and was an “option”.
Equally, in deciding against a reduction in the number of cabinet ministers, he said 15 was not a large number when compared to other countries. But with some departments “fire-fighting” and taking on huge responsibilities, other departments were not not as demanding and needed to be reshaped.