Business

Lessons in cuts from Ireland's Mr Snip

Dublin march (November 2009)
Image caption The severity of budget cuts sparked protests across the Republic last year

It was deeper, faster and it looks like it's going on longer.

The recession in the Irish Republic has been one of the worst experienced by any developed country and it's not over yet.

But unlike the UK, the country decided to tackle their budget deficit almost as soon as it became obvious just how bad the problem was going to be.

So while the rest of the world was just beginning to understand the consequences of the downturn in 2008, Ireland began to cut - and cut hard.

Ireland's 'Mr Snip'

Colm McCarthy is not a man you would readily associate with the economic equivalent of slash-and-burn.

As an economics lecturer with a bookish demeanour, he was more used to marking undergraduate exam scripts than taking on a sovereign nation's budget deficit.

But when at the end of 2008 the Irish Finance Minister Brian Lenihan asked him to take on the task a heading a committee on the subject, he was happy to accept the challenge.

The committee was called 'An Bord Snip Nua' (the new snip board) and almost immediately set about looking for cuts and savings across the economy.

Billions worth of cuts

And when the government got the panel's report in July 2009 there was a suggested cut on each of its 308 pages.

The committee proposed that 5bn euros (£4.3bn; $6.2bn) should be cut from the budget along with the loss of more than 17,000 public sector jobs.

It said social welfare payments should be cut by 5% and the child benefit budget slashed by 20%.

The years of plenty that characterised the rise of the Celtic Tiger were at a stroke consigned to history.

Austerity budgets

Mr McCarthy's report formed the basis of a series of austerity budgets pushed through by the Republic's governing Fianna Fail party.

Public sector workers had their pay cut and pension benefits reduced, imposing an 18% pay cut for many workers.

And it was not long before public services were also hit - with millions taken off both the education and the health budgets.

The government may have imposed the cuts, but the work had already been done for them by Mr McCarthy and his committee.

Waste or income?

So looking back now, how hard a job was it for the man nicknamed Mr Snip?

"I quickly realised that one man's fat is another man's income," says Mr McCarthy.

"Everyone's in favour of eliminating waste, but they can never agree on what constitutes waste," he says.

But despite this, the committee ended up coming up with even more reductions than the government needed for the 2009 budget.

No budget left untouched

Mr McCarthy says that the key to finding the reductions lay in targeting budgets across the board, leaving no 'sacred cows'.

And he warns that the UK government's promise to protect departments like the NHS from the worst of the cuts may backfire.

"If you start excluding and red-lining the big areas - like health, social welfare and education - you paint yourself into a corner.

"It means you end up not being able to find economies in what departments are left - you have to make cuts across the board."

Calm on the streets

Despite the severity of the cuts, the elegant cobbled streets of Dublin have not seen the violent riots that have characterised the last few months in Greece.

Public sector workers have protested against the government's measures - with a strike by passport office workers the most recent to make headlines.

And with pay cuts and job losses along with house price falls of nearly 50%, there would seem to be all the ingredients for a popular uprising.

But after over a decade of plenty it seems that the Irish people have bought the government's plan for a new decade of austerity.

Image caption There have been frequent - and sometimes violent - protests in Greece

Big mortgage, no job

The Irish parliament, the Dail, may not have been surrounded by angry protesters fighting running battles with police but the effect of the cuts in society are plain to see.

With cutbacks having spread to the private sector, the austerity measures have ended up hitting some worse than others.

"The outcome of the budget cutbacks and downturn as a whole is very uneven," says Mr McCarthy.

"The type of person that has been most affected is someone who has a large mortgage from the peak of the boom and then loses their job."

"And I expect the experience of the UK in this regard to be very similar to that in Ireland."

Pain to come

With the UK more than a year behind their Irish neighbours in slashing public spending, Mr McCarthy warns that the cold, dead hand of the markets is waiting to punish any perceived fiscal under-achievement.

So far Irish debt interest rates have not seen the life-threatening spikes that have characterised the experience of countries like Greece and Portugal, but the UK cannot be complacent according to Mr McCarthy.

"If the UK does not face the music and do what it says it's going to do, then I think it could get into trouble on the markets at some stage," he says.

With the first of many spending cuts to be announced on Monday, McCarthy repeats what almost seems to have become something of a mantra for the Dublin economist.

"If people object to the composition of the measures that governments take - they should be asked what's your alternative, what's your plan?"

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