At its core, economics is about balancing demands – in Ireland’s case demands for better housing and better health services – with scarce resources.
For the past decade the focus of budgetary policy here has been on balancing the books and how to avoid a repeat of the last crisis, understandable given the severity of the 2008 bust. But that era is over.
We’re now in a period of strong public finances and that presupposes a different set of questions, none bigger than what to do with the additional resources.
Much of the current narrative, however, still centres on buffers, rainy-day funds and where the next crash is coming from. Our policy focus is still in crisis mode. That’s not to say saving for a future downturn isn’t important, it’s just secondary to how we should spend the current dividend.
Budgetary surplus
The latest exchequer returns show the Government is likely to have generated budgetary surplus last year of 0.4 per cent of gross domestic product (GDP) or €1.5 billion on foot of a record €59 billion tax take.
With the Brexit threat parked for the moment, this budgetary strength is likely to continue into 2020 and beyond. What is needed is a sensible plan on how to deploy these additional resources over multi-year timeframe, one that will keep the public finances on track and the economy on a sustainable trajectory while delivering improvements in infrastructure. But there is no sense that the Government has such a plan in place.
Doubtless the Minister for Finance, Paschal Donohoe, has a difficult task in balancing demands on the public purse, tempering expectations for tax giveaways while remaining fiscally disciplined. A current spending plan that was locked down and insisted upon as a point of principle at the start of each political cycle or perhaps tied to a relevant measure of growth might help his cause and alleviate some of the politicking that pollutes the process.
The Government seems instead to have only vague budgetary plans – a default setting of €3 billion a year – outlined in various publications, plans that inevitably get punctured by crises in health or housing, which crop up perennially.
Windfall
Much of the current corporate tax windfall for instance has disappeared down the wormhole of spending overruns, a point that the Irish Fiscal Advisory Council repeatedly makes. Was that value for money? The Government's Project Ireland 2040 is an attempt at least to lock down the investment side of the ledger but there needs to be a more coherent strategy when it comes to day-to-day spending.
Ireland has always struggled with stability and the public finances reflect this. The economy oscillates from one extreme to another, with tides of tax washing in and out, a cycle that is made worse by the vagaries of politics and by our membership of the euro zone, which ties us into monetary policy that is often out of kilter with the economy here.
In the traditional paradigm, a central bank would be endeavouring to cool the jets of the turbocharged Irish economy with higher interest rates but instead we're locked into zero rates courtesy of the European Central Bank, which is now also pushing for looser fiscal policy.
This Government has benefited from a huge surge in revenue which has helped cover up overruns and fund new investment, the choices facing the next one – presuming this is an election year – will be tougher, making value for money in what is spent all the more important.
