Wednesday 28 September 2016

Voters are not falling for the line on stability

Focus on fiscal restraint has been positive, but there's lots to worry about, writes Dan O'Brien

Published 07/02/2016 | 02:30

DECISION: Counting votes. Photo: Steve Humphreys
DECISION: Counting votes. Photo: Steve Humphreys

The early days of the election campaign have been marked by the absence of auction politics. Instead of attempting exclusively to outdo each other in what tax breaks and new spending commitments they offer to voters, the parties have been arguing about the detail of the constraints and limitations on future giveaways. One party (Labour) has explicitly said that the reduction of public debt is a priority.

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Is this a sign, however tentative, that our politics has changed? Could the effects of the crash and the plethora of new rules on managing the public finances have brought a new maturity to politics?

The move away from making as many promises as possible to acknowledging how scarce resources will be is potentially much more significant than differences over the amount of future "fiscal space" in five years from 2017 to 2021.

That issue and Fine Gael's 'Long Term Economic Plan' are discussed in more detail below. But first, today's Sunday Independent/Millward Brown opinion poll, many of the details of which augur very badly for the parties.

Questions contained in the poll point to a big majority of voters not buying the government line which stresses a link between political continuity and continuity of the recovery.

• Only one in three respondents believes a change of government would imperil the economic stability.

• On the issues that will influence how people vote, just 11pc named managing the economy as their most important consideration.

• When asked what the priorities of the next government should be, only one in eight plumped for debt reduction, the lowest of the four options offered. Almost five times that share of respondents chose more spending - on services and benefits - as their preferred priority.

• Among the most eye-catching findings is that 24pc of respondents name Fine Gael as the party to be trusted most on managing the economy, with just 3pc naming Labour. As both parties' respective support levels are higher, it would seem they have already exhausted the trust-us-on-the-economy line as a vote winner.

These results point to an electorate that is very far from risk averse when it comes to managing the public finances and the economy more generally. They also suggest that the Government's attempt to stress its record, experience and prudence appeals only to a minority.

The widely held consensus among political analysts has been that the Irish electorate is stability orientated and that voters would move back to mainstream parties as they became focused on electing a government. Today's detailed findings and the polling trends over recent months increasingly point to pundits getting it as wrong as economists who predicted a soft landing for the economy before 2008.

With Fianna Fail making about as much headway in the polls as the coalition partners, the antipathy towards the established parties appears to be as durable as it is deep.

If Irish voters follow the pattern set in southern Europe in the post-crash era, where neither exposure to the issues during campaigns nor the playing of the stability card by mainstream parties led to a defragmentation of the vote, it is hard to see a stable government emerging unless the two civil war parties coalesce. Given that the chances of either of those parties entering into such an arrangement as the smaller partner are slim, the probability of a Fine Gael-Fianna Fail tie-up appears low.

If the vote at the election is as fragmented as today's poll suggests, coalition formation and cohesion will be made much more difficult, as Spain is experiencing seven weeks on from its transformative election. On current polling trends, the chances of no government emerging from the 32nd Dail is higher than ever.

From the political space to the fiscal space. That so much campaign has been spent on this issue is surprising not only because it is so arcane, but also because the differences in estimates about the amount of fiscal space are so tiny compared with sums that will be spent over that five-year period by whoever is in power.

The sums that will be spent are huge. Last year, total public spending stood at just under €74bn (considerably more, incidentally, than the less-than-total "Exchequer" spending figure of €58bn that is, alas, more usually cited). Even if there were to be no increase whatever in public spending in the years to 2021, the cumulative amount spent by the State over the five-year period would be €370bn.

Now look at the differences on fiscal space. Fine Gael, when it finally settled on a figure, believes there will be more fiscal space than anyone else. It puts the figure at €10.1bn over five years. At the other end of the spectrum, the public finances watchdog, the Fiscal Advisory Council, has estimated that the fiscal space over the same period will be closer to €3bn. While there is a considerable difference between the council's figure and Fine Gael's, when placed in the context of well over one-third of €1tn (that is 'trillion', not 'billion') of total spending over five years, the figure is tiny.

Fine Gael has been pilloried for snatching defeat from the jaws of victory in the appalling communication of its economic plan. That is richly deserved - on clarity and comprehensibility the party could hardly have made a worse job of setting out its stall. But the detail of the plan is much more coherent than was its presentation.

The 'Long Term Economic Plan' published last Thursday is based on assumptions about how the economy will perform. These assumptions are in line with those of most other forecasters, in Ireland and internationally. Although all of these forecasts will almost certainly turn out to be wide of the mark, Fine Gael has not done what parties and governments have tended to do in the past - make rosy assumptions about growth which give them more resources (on paper) with which to make promises.

Another welcome aspect of the plan is the amount set aside for contingencies. Of the €10.1bn Fine Gael estimates will be available as fiscal space, one-quarter (€2.5bn) has been put aside for what has been colloquially referred to as a "rainy-day fund", even if it is not a "fund" as anyone would generally understand that term. It is, in fact, unallocated cash to be used in case things go awry.

Given the scale of the risks to an always volatile Irish economy, one could easily argue that keeping €500m unallocated each year is not enough of a buffer. But getting into the habit of making any allowance for contingencies - recognised as best practice - is a positive development (it will be instructive to watch what actually happens to any unused contingency cash if Fine Gael is in government as it is a tendency of governments everywhere to spend such money at the end of each year in the manner of a slush fund).

There are certainly some points in the plan that can be criticised - the assumption, for instance, that prices at which the State procures goods and services will be lower than overall inflation or that they will fall - is hard to stack up. If savings were to be made in procurement, they would have been made already. But overall, the plan reflects what seems to be a new-found realism in the political class that fiscal rules will greatly limit freedom of manoeuvre in the future.

Two weeks ago this column worried that politicians of all hues had not internalised the extent of the constraints new European budgetary rules would have on tax and spending options. There are encouraging signs over recent days that there is less to worry about it this regard.

Over the past two years, this column has worried that the fragmentation of politics could lead to Italian-style ungovernability, with weak and short-lived administrations becoming the norm over the long term, and not just for a few years, as happened in the early 1980s. A growing body of polling data suggests that a bout of ungovernability could be just three weeks away.

Sunday Independent

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