Thursday 27 October 2016

Donal O'Donovan: Just because we can avoid balancing the books, that doesn't mean we should

Published 05/02/2016 | 02:30

Richard Bruton, Taoiseach Enda Kenny, Michael Noonan and Simon Harris at a media briefing on the Fine Gael economic plan. Photo: Gerry Mooney
Richard Bruton, Taoiseach Enda Kenny, Michael Noonan and Simon Harris at a media briefing on the Fine Gael economic plan. Photo: Gerry Mooney

Enda Kenny and Michael Noonan are less interested in balancing the budget than they are in hyping up spending promises.

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Fine Gael's leaders have become lost in fiscal space, so enamoured by their own ability to manipulate big numbers that the party has lost sight of what ought to be its core political appeal - a track record of successful economic management.

That is the unavoidable conclusion one comes to looking at the Long Term Economic Plan launched yesterday by the party.

As the biggest party in a Government that has helped oversee a remarkable economic turnaround, Fine Gael was uniquely placed to choose its preferred battleground in Election 2016.

Bizarrely though, rather than trying to hold the electoral field from the vantage point of its successes in terms of economic management in office, the party has opted to go down in the mire of tax-and-spend promises.

The danger is they'll drag us all down with them.

Hooked on the idea that the election is going to be won by outbidding its rivals, the party is now fighting it out alongside Fianna Fáil, Labour and whoever you're having yourself in a scrap to outspend each other that will ultimately leave taxpayers the losers.

The economic plan that was launched yesterday is short on detail, which is hardly surprising considering it's basically just an election manifesto.

But it's the detail that is included that is remarkable.

It shows beyond any doubt that Fine Gael as a party has abandoned any ambition to balance the national budget, until external European rules force it to in 2019.

It's almost as though, with the Troika gone, the party has lost sight of the need to bring the recovery across what should be its true finish line of paying our own way.

To put things in perspective, under the Fine Gael plan announced yesterday it will be more than a decade after the crash before the cost of running the State is brought back in line with the State's income.

That's despite the fact that the plan is based on forecasts that the country will have had a full seven years of growth by 2018.

That is surely long enough to put our own economic house in order.

Not to Fine Gael, which thinks it will be appropriate to still be spending more than we take in in taxes that year, for no more reason than Brussels says it's OK.

Without dragging readers into the fiscal space morass all over again - the pre-election promises being made by Kenny and Noonan are based on the money that, with a fair wind, will be available to spend on services and investment over the life of the next government.

One factor in that equation is the impact of new European budget rules introduced as a result of the Fiscal Compact Treaty.

The thrust of the new rules is that, by and large, countries should not spend more than they earn.

Under these rules, we were supposed to balance the books by 2018.

But, it turns out there's a lot of leeway around how long governments get to reduce over-spending. Lots of leeway, in fact.

So much so that, with remarkable timing, officials in Brussels are in the process of signing off on a looser deal for Ireland.

Bizarrely, it means that if the next government lasts until then, it can run a deficit of 0.5pc in 2018.

In money terms that is well over €1bn, but the European Commission will regard it as a balanced budget.

But calling a 0.5pc deficit a balanced budget doesn't make it so. Fine Gael, and every other party could, and should, have ignored the additional wriggle room. Or at the very least hoped against hope we would never need it.

Instead the Fine Gael Long Term Economic Plan treats the Brussels deal as extra spending power, and ignores the reality that any deficit is paid for with borrowed money.

Ironically, but unsurprisingly, all its new-found fiscal incontinence is costing Fine Gael political support.

The harder that Enda Kenny - and especially Michael Noonan - try to sell the public on jam tomorrow, the softer public support for Fine Gael is becoming, at least according to the opinion polls. And it should not come as a surprise.

Fine Gael really should not need the Troika to come back to tell it that the sooner we stop borrowing, the better off we will be. Based on the party's slide in the polls, the rest of us don't.

Fiscal space: Where do the figures come from?


Base case: €10.6bn. This is the gross extra cash the Department of Finance says we’ll have if the economy grows between 2017 and 2021.

Take away: €2bn for the impact of rising costs.

Leaves: €8.6bn net extra potential cash


Base case: Starts at €8.6bn

Take away: €4.2bn for the impact of inflation, and €1.5bn for the cost of an aging population

Leaves: €3.2bn, or €640m a year according to the Fiscal Council


Base case: Starts at €10.6bn

Adds €1.5bn, thanks to looser EU rules

Equals: €12bn

Take away: €2bn for the impact of rising costs.

Leaves: €10.1bn

... then take away:

€4.2bn for the impact of inflation

€1bn for capital investment

€2.4bn to scrap USC

€2.5bn for rainy day fund

Irish Independent

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