Here’s a figure no one is discussing in the election: €6.98 billion.This was the amount of cash the State spent in 2015 to service the national debt, or 15.3 per cent of exchequer tax revenue in the year.
That’s an enormous burden, even though the refinancing of expensive International Monetary Fund loans helped to take debt-servicing costs down from €7.47 billion in 2014. Debt interest swept up 18.1 per cent of tax revenue that year. It was 19.4 per cent in 2013, practically €2 for every €10 the Revenue collected that year.
These are salutary figures. At one level they represent the enduring legacy of the crash. Quite clearly, money spent on debt interest is money that cannot be spent on health, education, welfare and all the other things we expect a modern state to do. The rapid increase in these outgoings is one of the prime factors behind the cuts made in the drive to restore order in the public finances, cuts that continue to inflict political damage on each of the established parties.
Outgoings mushroomed
And increase they have. Each year between 2001 and 2008, for example, the State spent between €1.5 billion and €1.9 billion on debt interest. These outgoings mushroomed once crisis struck, as the State borrowed more and more to fund huge budget deficits and rescue collapsing banks. Ireland has spent some €35.5 billion to service the national debt since 2010, official figures show.
In this sense, we live still with the noxious after-effects of the debacle. True, Fianna Fáil has been at pains to protest in recent weeks that it has learned its lessons. For Irish taxpayers, however, the learning goes on and on. For decades to come, indeed, taxpayers and their families will be in continuing education on the nature of debt and the constraints that particularly high debts impose on public finances. This curriculum is not optional.
In this context, it’s nothing more than a fallacy to consign the whole thing to some kind of a distant, woeful past in which circumstances were unfortunately different. That this happens to be a politically convenient fallacy is no accident.
Ireland’s debt constraints are all too real. Consider the reduction in interest expenditure between 2014 and 2015, just shy of €500 million. Such an amount would make up quite a large portion of the “fiscal space” money required next year to fulfil the election promises of most parties. Fine Gael’s plan assumes €587 million in “fiscal space” for 2017; Labour’s assumes €1.24 billion; Fianna Fáil’s assumes €500 million; Sinn Féin’s assumes €789 million, and more besides.
Speaking of Sinn Féin’s assumptions, Gerry Adams’s confused radio interview on Thursday raised serious questions about the foundations underpinning its plan. From the leader of a party desperate to establish economic credibility, it was quite the opposite of credible.
While the proposals of all parties are predicated on a continuation of solid economic growth, the leeway foreseen in each case also assumes that there is no big rise in sovereign borrowing costs. Any such rise, if sustained, would simply eat into the emergent scope in the public finances to ease tax a little and boost spending a little. By extension, a major increase could undermine current spending and taxation programmes.
Bond interest rates
Just as the price of shares can rise or fall, so too can interest rates on bonds. That was the bitter experience of the 2010 bailout, which followed a sharp rise in borrowing costs as market lenders lost confidence in the State’s capacity to service ever-rising debts.
These days Ireland can borrow 10-year money on the open market at some 1 per cent, close enough to a record low. True, bond-buying by the European Central Bank helps to compress Irish borrowing costs. To the extent that the denizens of global finance are following the election, they appear to be unperturbed by a succession of opinion polls pointing to a fragmented Dáil.
As any politician will tell you, however, the only poll that counts is the real poll next Friday. Only when the result comes in will anyone be in a position to take the measure of the new administration and its policies.
As the election nears, all of this calls for proportion, honesty and clarity in political debate. There is no getting away from the requirement for market confidence in the economic programme of the next government.
