Economic Policiy; A State of Chassis

Although he was unbelievably fortunate to have attained the leadership at all, given what happened within Fianna Fail over the last decade, CharlieHaughey could not have taken over at a less propitious time. As is argued in the following article by ESRI economist, Joe Durkan, the Government is now forced to impose severe deflationary measures on the economy because of the alarming size of the borrowing requirement and the huge deficit in the balance of payments. This view isn't exclusive to Durkan. At a meeting of the Dublin Economists Workshop, in Trinity College, in early February, economist after economist rose to speak in scarifying terms of the future of the Irish economy and of the need for drastic remedial action right now.

Basically, the Government is forced to drastically reduce the budget deficit and this at a time when there are overwhelming public demands for a reduction in the tax burden, as well as for its reform. A further complicating factor is the Supreme Court decision on the taxation of married women. If the High Court finally decides that the State is forced to make any repayments, then the dimension of the budgetary problem is truly daunting. Haughey himself was deeply sceptical of the Manifesto plans, which were almost the exclusive product of Dr. Martin O'Donoghue. Discussion within the front bench on the issue during the time in opposition, was cursory and Haughey made little secret prior to the 1977 election, that he thought O'Donoghue's proposals were "daft".


It was his belief that Fianna Fail would lose the 1977 election and he was as surprised, as were the Coalition ministers that the electorate turned up vehemently against the incumbent Government. Within the cabinet since July 1977, discussion on economic policy has been sketchy. Basically the shape of economic policy was decided upon by the cabinet sub-committee on economic affairs and this included Jack Lynch, George Colley, Martin O'Donoghue, Des O'Malley, Gene Fitzgerald and Jim Gibbons. Haughey felt almost entirely excluded, even from contributing on economic matters and voiced his dissatisfaction at the unsatisfactory nature of economic decision-making within the cabinet, on a number of occasions. However, he was in no position to press the point and it took all his energy to hold his own line on such issues as, social welfare payments, and doctors' fees, etc.


His first decision on being elected Taoiseach-elect was to go ahead with the publication of the Government's White Paper on the economy, which had been approved by the cabinet a few weeks previously. This too had been the product of Martin O'Donoghue and Haughey had been scathing about it in private, prior to Jack Lynch's resignation announcement. His decision to go ahead with publication was an instinctive response, to the pleas to restore party unity following the bitter leadership battle. Almost immediately however, he began to regret the decision.


The basic thrust of Haughey's economic strategy now is firstly to reduce the borrowing requirement fairly drastically, to at least £800 million, which will be about 10 per cent of GNP - the level it should have been at last year. He will then have to make some gestures towards the PAYE lobby, probably in the form of indexation of tax bands and then of course, he will have to reform the married women's tax provisions.

All of this inevitably is going to mean higher indirect taxes, plus fairly drastic attempted cuts in public expenditure. These cuts inevitably however, will be in the nature of "attempted" cuts, for previous Governments have learnt that most public expenditures are simply not amenable to cuts in the short term.

The prospects for the economy in the next few years appear to be dim, which is going to pose all kinds of problems for Fianna Fail in the next general election. However, it seems that elections are won and lost not so much on how well the economy is doing, but what is happening to the rate of inflation. Thus, if the Government can manage through a combination of luck and adroitness - mainly the former - to keep the level of price increases down, then its electoral prospects may not be too precarious.


A central part of the Haughey strategy will be to distance himself from the economic policies of the Lynch Government and conversely, the opposition will be trying to fasten that identification. The probability however, given the high public awareness of Haughey and his relationship with the former party establishment, is that he will be perceived as having started with a clean slate. That Michael O'Kennedy should be his closest ally in this campaign, is in many ways ironic. O'Kennedy was strongly identified with the Lynch faction of the party from 1970 to 1973, but seemed to break out of this mould in 1975, when he spearheaded the switch in Northern policy, much to the annoyance and persistent irritation of Mr. Lynch.


It was in October 1975 that O'Kennedy first revealed the fine sense of opportunism which was to stand him in grand stead in the December leadership battle. O'Kennedy was more than interested in being a candidate himself, but a canvass of the party by Michael Smith, his constituency colleague, revealed that he would get only a handful of votes. He informed a ministerial colleague in the Minister's dining room on the evening that Jack Lynch announced his resignation, that he was still keeping his options open. A little while later that evening, he informed the same Minister in Padraigh Faulkner's room on the first floor of Leinster House that if the contest were simply between George Colley and Charles Haughey he would vote for Colley.

It was late on the Thursday evening that he had his Damascus and the circumstances which have led up to this aren't by any means clear. However, he told Haughey late that night, that he would vote for him and informed Colley of his decision the following morning.


There have been reports that O'Kennedy's defection was decisive in the election of Haughey. This is not true. Not a single TD switched his or her vote as a result of O 'Kennedy's change of mind. Haughey however, was ecstatic about the defection and credited O'Kennedy with a great deal of political nous in being almost alone among his ministerial colleagues, in having sensed how the wind was blowing. Originally, it was Haughey's intention to appoint O'Kennedy Tanaiste as well as Minister for Finance, but when George Colley made it a condition of his serving in Government, that he remain on as Tanaiste, Haughey relented.


O'Kennedy owes his appointment as Minister for Finance to Haughey's view that what is now required in that job, is a negotiator, rather than an economist. The Minister for Finance is increasingly involved in talks with the trade unions and the farmers and some skill and diplomacy is now obviously required, in dealing with the PAYE lobby. Haughey however is personally the coordinator of economic policy. All decisions will come from him; hence his personal relations with O'Kennedy, improved considerably by O'Kennedy's perspicacity on the evening of December 6, are of considerable importance. .


The budget speech may represent a triumph for O'Kennedy and somewhat of a humiliation for O'Donoghue, but it will certainly be an uncomfortable occasion for George Colley, sitting there listening to the dismantling of his economic policy and the correcting of the "errors" of last years' budget.