Macroeconomic governance involves three perspectives. These are the short term – the next six months or a year; medium term – the next four or five years; and long-term—the issues that need to be addressed decades in advance. From the perspective of Irish governments in recent times, only the short-term deserves attention, leaving the medium-term to civil service and the long-term to sporadic commissions and academic concerns.
The shortening of the political time horizon has been cunningly assisted by the mainstream media, to which the political class pays undue attention. There have been recent examples of ministerial responses, including afternoon political commitments to radio-telephone programs broadcast that same morning. The problem with the short-term appeasement of what bothers the public is that the quest for coherent policies in the medium and longer term is hampered by populist journalists applauding tomorrow. The response to the recent rise in fuel costs, which is totally beyond the control of Irish policymakers, is a perfect example.
Everyone knows that sound climate policy means reminding people that fossil fuel consumption must be reduced in the coming decades. Part of the policy mix is higher prices induced by carbon taxes when the market doesn’t do the work. Opposition parties and many on the government benches have urged that almost everyone should be protected from rising petrol, diesel and electricity costs. There is a serious issue that needs to be addressed in smoothing the adjustment, particularly for vulnerable low-income groups, but a steady increase in the relative price of fossil fuels has been expected for many years and is stated government policy. The Greens are on the right side of economic policy arguments on this issue.
On other elements in both energy and transport policies, they dodge difficult decisions and have company. But the Greens rightly insist on the CO2 tax, the best instrument of Irish climate policy.
People don’t want to hear that the retirement age needs to be raised: life expectancy has improved dramatically and there is no tooth fairy providing the dwindling proportion of the working-age population with a free retirement income for additional retirees.
Everyone knows that, and in parts of the private sector people retire later. But politicians have given in to the noise and bottled up the planned increase in the statutory retirement age, all parties agree.
It is the Treasury Department’s duty to publish twice a year a Stability Program Update (SPU) commissioned by the European Union. The latest version was released last Wednesday and reflects officials’ preoccupation with the medium-term outlook, not only for the broader economy but also for public finances. The Treasury is the curator of all past mistakes, materialized in the guise of national debt. This is either sustainable in the medium term or not. Officials think it’s manageable, and they might be right. But Ireland has a bigger legacy of debt than most other eurozone countries, and officials recall that Ireland ran out of roads in 2010. This brought us into an IMF program, one of the few countries in Western Europe that has failed to maintain government financing capacity even in modern times.
A prominent Irish politician recently talked about the disposition of Ireland’s non-existent Sovereign Wealth Fund as if the state had a black balance sheet.
There are plenty of ministerial brainstorms to test the limits of borrowing. Two recent examples: Sports Secretary Jack Chambers announced last week that Ireland’s capacity to fund sports stadiums is extra-territorial and extends to Casement Park in Belfast – which was in the UK at my last check.
Culture Minister Catherine Martin plans to give away 325 euros a week to 2,000 newly discovered artists. There are no spending requirements, and she has admitted that the lucky winners will be chosen at random, which is sure to be a strong response. The minister’s media people can then issue a statement welcoming the great interest in joining Aosdána na nÓg. Opposition press releases will lament the average limit of just 2,000 winners and there will be airtime for the unlucky.
Back in the real world, the Treasury Department has revised down its forecasts for economic output over the next few years. The report includes a frank admission that forecasts have had to be abruptly revised on a regular basis and that this could happen again when the next SPU is released around budget time next October. A fair summary of the Department’s assessment would be as follows: Things might be going well, but then again, they might not. There is no need to plan for the first outcome – just spend more money (fuel subsidies, income tax cuts, UK stadiums, performers) and the tax revenue should be enough to cover it.
The second finding that the economy could hit a rough patch is the contingency that needs to be taken seriously. Ireland is one of the most indebted countries in the euro zone and the ECB in Frankfurt has made it clear that the cheap government bond will end this year.
The government’s borrowing costs have already risen, and the only sensible policy is to make spending commitments or promise tax cuts.
It has been less than a decade since Ireland exited the troika program and painful fiscal corrections of 2009-2013, which popular memory has attributed to the collapse of the banking system.
But failures in managing public spending in the previous bubble years also contributed. The bubble mentality has held up remarkably well given the high price it asked last time.
https://www.independent.ie/opinion/comment/free-money-is-not-the-way-to-head-off-a-crisis-41560005.html Free money is not the way to avert a crisis