With yet another savage budget pending in early December there has been public indignation over recent revelations concerning the pay and pensions of Irish bankers and the initial hand wringing of the government on the issue. Hints have been dropped that the budget might contain something about bank pensions. The hard pressed ordinary taxpayer, facing further draconian taxes next year, will be watching closely.

This issue has the potential to upset the coalition in earnest and the government should handle it with great care. The public has been stoical thus far in the face of continued austerity, with most accepting that the fiscal gap has to be bridged, but the bankers have touched a raw nerve, exacerbated by separate disturbing reports of cuts in front line services such as home help.

Bankers already occupy a special place in the public’s demonology. Not only did they collectively wreck the economy, but the cost of bailing them out, $75 billion plus, has made our bad fiscal debt even worse. Anglo Irish Bank was fully nationalised, Allied Irish Bank is 98% funded by the state and most of the others have been taken into state care, with only Bank of Ireland off life support.

So the newspaper revelations last month that 76 bank officials were being paid over $350,000 in basic salaries, with 1700 bankers earning over $125,000, almost three times the current average Irish salary of $ 46,200, caused outrage. This was compounded by the discovery that a new executive at the IBRC (Anglo reconstituted) was on a package of $600,000 plus (sanctioned by the Irish Minister for Finance), one of 19 in the IBRC (most decidedly OUR bank) getting $350,000 plus. This in a state owned bank, in a broke country where only 10% have incomes over $125,000 and where the state pension is $15,000 a year for a single person.

There is worse. It has emerged that Allied Irish Banks, 98% funded by the state, channelled around $1.3 billion from its recapitalisation funds (taxpayers’ dollars) to plug the deficit in its pension fund. In response to some of the criticism, AIB bosses also confirmed that letters had been sent to some of their former senior executives asking them to return voluntarily portions of their pensions (In some cases $500,000 annually), with just one agreeing to reduce his annual pension to around $300,000. The IBRC, as it happens, has a pension fund fully funded (to 111%), one of the very few “defined benefit” pension funds in the country without a huge hole in it.

The banks have brazenly defended the mega-salaries as the going rate for the job, the suggestion being the recipients are worth it. Park for a moment the observation that banking is not rocket science and at the top hardly merits even half the amounts being paid. Park also the thought that , whatever justification there was for the banks in their former existence to reward their head honchos so handsomely, when they could screw their clients with abandon, they are now almost all totally dependent on the state. The bankers’ claim begs the question, in respect of the former and retired bankers who have walked off since 2008 with large pay-offs and huge pensions, whether these payments were deserved, given the unholy mess they created.

The banks’ recent performances merit at best the description of uncivil servants. Business credit has all but dried up. The banks’ strategy appears to be to hunker down until better times arrive. The financial regulator is not helping by the very strict regulatory regime now in force, but he can hardly be blamed for carrying out his job. The problem is that the justification for bailing them out then and keeping them on life support now was and is that the economy needed (needs) a functioning banking system. What the public sees is definitely not this -just the old system Mark II with very little changed and certainly not helping the economy.

To date the banks have gone softly on the mortgage crisis, with only a handful of repossessions/evictions. This is not altruism. The banks are coldly aware that to wield the big stick by pressing for repossessions, or forcing thousands of bankruptcies at present, would be a bridge too far and would galvanise the government into radical action. So, like Mickawber, they wait for something to turn up. There is no talk of debt forgiveness, with the banks, incredibly, bleating “moral hazard” (!). The new legislation to update Ireland’s antiquated bankruptcy laws will still leave the banks holding most of the aces and observers expect that they will use the new legislation when passed to justify getting tough with debtors – something to be watched.

The Government’s reaction on bankers’ pay was initially to plead impotence on the grounds that bankers’ severance packages were contracts entered into under the previous government and it was powerless to change them. (It is interesting that this line is somewhat similar to that taken regarding the Croke Park Agreement, though Croke Park has a get-out-of-jail clause – not yet invoked.) When challenged, there were vague references to the Constitution and the suggestion that any attempt to renegotiate would risk a legal challenge. There were similar reservations in the 90s expressed about the Criminal Assets Bureau legislation , which however was found to be constitutional; this might provide inspiration. Such has been the public furore, that, as I write, the Government has shifted tack and is now admitting that the issue will be addressed.

Critics argue that the Government is afraid to go after the bankers’ pensions lest it open a Pandora’s Box out of which anything and everything could be challenged, not least the pay, pensions and benefits enjoyed by the politicians, and Ministers in particular. Taoiseach Enda Kenny earns more than the British Prime Minister, as, indeed, do the rest of the Cabinet. The levels of additional ministerial benefits are also generous and have come under recent media scrutiny, while the separate pension arrangements for all politicians are regarded, somewhat unfairly, as second only to the bankers.

The options boil down either to introducing a surtax or levy on bankers and other pensions above a certain figure, or holding a referendum to amend the constitution. The argument against introducing a surtax is that , if it were not to be deemed discriminatory, it would have to apply to all pensions above a certain figure, with all that that would imply. However, the Irish income tax code is a comprehensive one, replete with exemptions and exceptions and it should surely be possible to draft legislation in such a way that the practical application would be to reach those for whom it was intended.

The precedent for holding a referendum is the one held last year to permit reductions in judges’ pay (constitutionally protected) following the refusal of a minority of the judiciary to agree to a voluntary pay cut. Not surprisingly the referendum was carried four to one. There is little doubt that one on bankers’ pensions – maybe even their pay – would be carried similarly, the trick being to find the appropriate wording; and there’s the rub.

The budget speech will be interesting.

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