The “spring economic statement”, due soon from the Government, is fast assuming almost totemic status. As Fine Gael and Labour approach the final phase of their mandate, the document will set out their joint fiscal vows for the election to come. But what exactly is going on? And what does it all mean?
Although the spring statement has been cast in some quarters as something new and entirely novel, the reality is more subtle. The statement, in essence, will be a dressed-up variant of a formal document the Government is already obliged to produce under European budget rules. By the end of April every year, member states whose deficit and debt are in breach of EU limits are obliged to produce a “stability programme update” setting out the progress made (or not) in meeting fiscal targets from the previous October.
Coming as it does at a mid-way point between annual budgets, this is essentially a half-time assessment for examination in Brussels. Member states must also plot future moves to curtail debt and deficits in the update. Ireland’s annual update was released as matter of routine every April for years, but without any political fanfare. There was a simple explanation for that: for as long as the document contained bad news in the form of yet more retrenchment to come by way of tax hikes and spending cuts, there was no desire to publicise it.
Two things have now changed. First is the return of growth to the economy, which has changed the parameters of policy debate to the extent that discussion centres on the scope and scale of recovery dividends. Second is the fact that the election looms just over the horizon, presenting an obvious imperative to the parties of the Coalition and, indeed, the Opposition, to set out their economic plans. It is with all this in mind that the Government resolved months ago to expand the stability programme update into something bigger.
Government’s aim
On the assumption that recovery continues to deepen, the basic objective is to define the fiscal space available in coming years and set out a programme of taxation cuts and expenditure increases. While the whole package will be predicated on the achievement of certain rates of growth over the course of years, the Government’s aim will be to set out what it plans to do in the realm of income tax, the universal social charge and a wide assortment of other measures. Capital expenditure plans will be set out a little later.
The exercise can be seen, too, as a clear attempt to draw the Opposition parties into detailed debate as to what exactly they would do if they won the election. The Government is certainly unloved, but its election campaign will be fought on the basis that it is best-placed to consolidate the turnaround under way. This will play out against the radicalist onslaught from Sinn Féin and the hard left, and whatever is produced by Fianna Fáil, Renua and all the other contestants.
The spring economic statement, however, must be seen as a concerted Government effort to mould the framework within which the campaign takes place.
Yet uncertainties abound still. Right now the principal doubt centres on the leeway available within EU rules to introduce another expansionary budget next October. True, we’ve already heard plenty about austerity being at an end. But the Government will be obliged for years to maintain a very tight rein on spending and do more to eliminate what is known as the structural deficit, an estimate of what the actual deficit would be if the economy was at full capacity.
Expenditure caps
There is some confidence in Coalition circles that highly technical EU assumptions on the calculation of the structural deficit (don’t ask) can be reworked to allow a more gradual slide towards a balanced budget.
Yet expenditure caps are perceived as a major problem. This explains demands for European flexibility from Minister for Finance Michael Noonan and Tánaiste Joan Burton.
No matter how that plays out, the spring statement in the final week of April will be the first in a series of co-ordinated initiatives through which the Government will seek to dominate the political agenda right through to the October budget.
The statement will be followed by – in sequence– the marriage equality referendum in May; a capital investment plan in early June; a two-week public economic debate in late June involving all political parties and the social partners; and formal recommendations in July from the Low Pay Commission.
