The turnaround in the economy has led to more rapid growth than anticipated even a few months ago. This is reflected in the Government’s spring statement, built around the normal economic and financial review which is submitted to the EU Commission each year.
The statement outlined Government plans in general, though in truth did not add much beyond the normal review submitted to Europe. If this process is to be useful in future it needs more detail and a way for various proposals to be debated and examined, perhaps by Oireachtas committees, in the run-up to budget day.
The Government can afford to return some money via tax cuts and higher spending in the next budget and, if economic conditions remain strong, the next government should be able to continue the process. An important caveat tends to be lost in the political debate, but it should not be. All this depends on economic growth continuing and, as we know, the growth cycle has its inevitable and unpredictable ups and downs. Caution is required.
This means balancing the budget sooner rather than later and lowering the public debt burden to safer levels. The least desirable outcome would be to end up, faced by some unexpected event in the years ahead, having to head back into emergency spending cuts and tax hikes. Bound by EU rules and no doubt mindful of the experience of the last few years, Ministers Michael Noonan and Brendan Howlin have set out a course which does see continued improvement in the public finances. This is appropriate, although it would be preferable to see the deficit eliminated more rapidly to provide the necessary insurance for the years ahead.
The priorities in the budget also need to be carefully chosen. They should not involve resources being directed towards those who shout loudest, or for political advantage ahead of the election. One priority area should be key areas of public investment, a budget which was hollowed out during the boom. A clear-sighted view also needs to be taken on priorities for day-to-day spending.
In the debate now getting under way, the idea of restoration is not appropriate. Before the crisis, the public finances were unsustainable, with the tax system based on narrow foundations and public spending at unaffordable levels. There is scope now to use the fruits of growth to improve public services and start to reduce some of the emergency tax measures, but this needs to be based on a sustainable strategy, rather than on a mistaken view that we can turn back the clock.
The election will see a fierce debate on tax and spending and on the right balance for a state such as Ireland. This is entirely appropriate. However, nobody should pretend that the public finances are fixed, or that significant risks do not remain.