With the state’s finances in the mire, tough decisions need to be taken. So the display of anger that erupted last week when pensioners and students took to the streets might be considered a sure sign that the budget medicine dished out 12 days ago is having the desired effect. That would be the wrong conclusion, however. The truth is that the government, having belatedly realised the urgent need to extract itself from an exchequer mess largely of its own making, has miscalculated how that wrong should be righted.

When it announced that the budget was being brought forward to October from December, we identified the decision as a publicity stunt. The move, announced as national pay talks were reaching a conclusion, was designed to put manners on the trade unions by illustrating the serious nature of our plight. The 6% pay award subsequently agreed demonstrated what an empty gesture that proved.

Worse, nobody seemed too bothered that the change meant Brian Lenihan, a rookie finance minister, would be sent in to bat on budget day with just over nine months of the financial year completed. Consequently, his advisers drew up the 2009 budget based on an incomplete reading of the current financial year.

The parlous state of the finances, the as-yet-unknown outcome of 2008 and the chipping away at the margins of the budget’s more controversial measures could force Mr Lenihan to introduce an interim budget in the first half of next year, fatally damaging his already tattered reputation.

If the government is forced into that corner, there will be a strong case for Fianna Fail to put itself before the electorate again. Having bought its way back into power by ramping up public spending and almost bankrupting the country in the process, the least it should do is seek a fresh mandate for its plans to clean up the mess it has created.

The biggest problem with the government’s attempt to right the financial ship, however, is the clear message that it sees the bulk of the economic adjustment being funded by tax increases rather than cutbacks in spending. As a result of the new measures, it is now a given that next year’s budget will include the continuation of the 1% and 2% income levy — possibly with reduced threshholds — increases in property and car-park taxes, the introduction of third-level fees to supplement huge registration fees, adjustments to PRSI and, if matters deteriorate as we expect, further real reductions in income through the failure to index tax bands. The flaw in this strategy is all too clear to those of us who lived through the budgetary mess that characterised the 1980s and the early 1990s.

There is now a growing consensus that failure to engage in public-sector reform, identified by this newspaper as a key government failing before last year’s general election, will prevent any prospect of economic recovery. With private-sector operators closing businesses, putting workers on short time and slashing wages, the sheltered public sector is growing as a percentage of the workforce — and being supported to the tune of €19 billion a year by a shrinking tax base. Even the most blinkered idealogue can see that this is not sustainable.

At a time when there is a question mark over the capacity and willingness of the banks to provide credit, increasing the tax burden will unleash a vicious cycle of further job losses in the real economy as consumer spending is dampened and sentiment collapses. Dealing with the sheltered economy is not the sole answer to our problems but it is by far the biggest issue that needs to be addressed.

Last week Dermot Ahern, the justice minister, speaking in the wake of the medical-card climbdown, said: “There’s no easy way round making hard decisions.” He’s right. But his government is refusing to make them.

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