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Monday 22 September 2014

Revenue relieves pressure for now - but big questions remain

Published 03/09/2014 | 02:30

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ECB President Mario Draghi
ECB President Mario Draghi

FAR too much emphasis is probably placed on the Budget these days; it is a Victorian tradition that has little place in a modern world where economies stumble and recover at warp speed.

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Those who still believe in the totemic magic of drawing up yearly spending plans, will draw confidence from the latest exchequer figures but the reality is any Budget cuts are likely to mean very little to most of us, perhaps a euro or two extra each day.

Inflation could make more difference as could a decision by European Central Bank president Mario Draghi (pictured inset) on interest rates when he meets in Frankfurt tomorrow.

The big questions are whether the present spending and tax targets, set out in the 2010 bailout plan, are now too ambitious or not ambitious enough and whether the Irish economy can sustain the recovery that is evident almost everywhere these days in the face of a nasty slowdown in the rest of the eurozone?

The answer to the second question is probably more straightforward. We can continue to grow, and outperform the rest of the eurozone, because we trade so much with the US and Britain. These countries are doing relatively well while the global appetite for Irish exports such as food and pharmaceuticals is also likely to remain undimmed.

The Irish economy is out of step with Europe just as it was a decade, or indeed a century, ago. We can enjoy economic growth while Europe flirts with recession.

The bigger question is how we should respond to the bounty which now confronts us. The political left and the right in the shape of organisations such as employers group IBEC are united in a belief that Finance Minister Michael Noonan should call an end to austerity. The voices calling for restraint are fainter than ever. The Fiscal Advisory Council is routinely ignored, while the Economic and Social Research Institute and the Central Bank are more comfortable on the fence these days. Their fence-sitting is understandable; it is boring to be a Jeremiah forever warning of impending disaster but there are plenty of reasons to be fearful even if one ignores the worsening situation in both the Ukraine and the Middle East.

One problem is that we are still over-spending. Another is that the Government is borrowing around 12 times more than what it expects to collect from the much-hated property tax.

There is little room to relax when we borrow €800m a month even if the cost of borrowing is at record lows.

The economy is back on track but many reforms are still necessary. The danger is that cheap credit and the uplift will rob us of the energy we still need to cement our gains.

Irish Independent

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