Stop right now if you think there’s any prospect of the Government yielding to the combined might of the ESRI and Fiscal Council in their critiques of its economic plan. There isn’t.
In public at least, questioning assessments of this kind are greeted with respectful-sounding Government mutterings about “important” observations being made. In private and in practice, however, the attitude is clear: “That’s all very well but we’re in charge here, not them, and we’re right.”
Barring an economic earthquake, there will be no scrapping of the plan to expand the 2016 budget by between €1.2 billion and €1.5 billion. In Government circles these are seen as modest sums for an expanding economy in which unemployment remains high and there is a big pool of potential labour supply. As things stand, any manoeuvre in terms of the scale of the expansionary package would be more likely to be a little on the upside.
We are in a changed economic scenario – although vulnerabilities remain – and the moves already contemplated are not favoured by the neutral budget crowd.
But financial markets are calm, borrowing costs remain low, credit ratings are rising, and there’s no unhelpful noise from meddling troika types. The deficit is in decline, the large national debt on a downward trajectory and there’s been six months of negative inflation.
More to the point, there’s an election coming. Thus a certain rolling of the eyes was perceptible in Coalition circles when the ESRI and Fiscal Council issued two warnings in a matter of days on the dangers of returning to the fiscal malpractice of the past. This charge is rejected outright within Government, where contrasts are drawn with flighty double-digit expenditure growth in the time of the Tiger.
Yet public warnings from bodies such as the ESRI and Fiscal Council are not good news for Fine Gael and Labour, whose collective stock-in-trade these days is “economic competence”.
This will be at the very centre of their election campaigns. So too will the relentless argument that the Opposition doesn’t have the fiscal smarts to run the place – which the Opposition would reject.
Hard lessons
Therefore, it wounds a little when external scrutineers conclude reviews of Government plans with talk of hard lessons not learned from the heady times which precipitated the crash. But do the complaints stack up? The Fiscal Council bemoaned the non-observance of EU rules but it acknowledges weakness in those very rules; and the International Monetary Fund has called for a complete overhaul of the European regime to simplify its operation and boost its credibility.
More piercing is the council’s observation that the grand plan for future years, as set out in the spring economic statement, fails to account for costs flowing from the ageing of the population and pressures in existing programmes.
Setting out its concerns, the ESRI said the measures already foreseen for 2016 were not going to cause a serious deterioration in the public finances. At issue was the principle of adopting an expansionary budget when the State had freedom of fiscal movement for the first time in years.
After a €30 billion retrenchment effort, the Government has now no compunction in deploying that new-found freedom to step in the opposite direction. All the more so when the ESRI recognises that such a course is unlikely to result in a serious worsening of the public finances, as was merrily noted by critics of the ESRI. So there will be no change of fiscal course.
The Government spent weeks on the back foot over its inadequate response to the IBRC disclosures before the decision was finally made to proceed with a commission of inquiry. There is some unhappiness in political circles that it took so long to get to that point. There was unhappiness, too, that the Anglo bondholders came back to haunt it via Freedom of Information correspondence between the Department of Finance and the Central Bank. These are not things the Government wants to be talking about at all.
This is the prism through which we can view discussions at the Fine Gael parliamentary party about the restoration of the pensioners’ telephone allowance. The same goes for Labour rumblings about the carers’ grant. There may be divisions between the two parties on these questions, but they might just serve to turn debate towards the division of the spoils of recovery.
Did I mention there’s an election on the way?
