News John Downing

Tuesday 30 September 2014

Still too early to get wildly excited about the light at end of the tunnel on our economy

Published 23/06/2014 | 02:30

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Finance Minister Michael Noonan has suggested that things are finally picking up
Finance Minister Michael Noonan has suggested that things are finally picking up

'Thanks to new-found hopes of economic recovery, the light at the end of the tunnel – extinguished to save energy in autumn 2008 – has now been switched back on."

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Let us take the rest of the "light in the tunnel jokes" as read and move swiftly on to two simple questions: Why are so many people talking about an easy enough Budget next October as a staging post to imminent economic recovery? Why is everything in the Irish economy all so rosy all of a sudden?

Two of the three agencies that did economic supervision over this nation in the economic bailout from November 2010 until December 2013, the EU Commission and the International Monetary Fund, have counselled extreme caution.

The Government's own Irish Fiscal Advisory Council, set up after the disasters of 2008, has taken the same view as the EU and IMF.

Let's recall that the Council's role is to independently assess, and comment publicly on, whether the Government is meeting its own stated budgetary targets and objectives. We know the Government is not obliged to take the fiscal council's recommendations as dictat. But we wonder why we have this council if their views can be so easily set aside.

Last Wednesday, Finance Minister Michael Noonan spent an intriguing two hours giving evidence and answering questions at the Oireachtas Finance Committee in Leinster House.

Mr Noonan's thesis was that Ireland will keep the EU spending rules and move swiftly towards a targeted 3pc GDP deficit – but all signs were that it would not be necessary to take €2bn out of the economy next October to do that.

In essence, the Finance Minister was saying that things are picking up. Tax receipts are up across almost all headings, more people are at work, and it is possible to get where we need to go with less austerity.

Towards the end of proceedings, Labour TD Kevin Humphreys asked the minister how he could be so dismissive of the EU Commission, the IMF and his own Fiscal Council. Humphreys reasonably pointed out that these organisations were, after all, working off data provided by the Department of Finance.

Mr Noonan said he had every respect for this trio of advisers but he also suggested that the information upon which they based their warnings might not be the most up-to-date. He further suggested that much of it could be based on the Stability Programme, published by his department in April, and might not take enough account of tax revenue data which came more recently and related to May 2014.

The minister said he certainly did not believe that other "soft data" – understood to be items like car sales, industry indicators and other things – were not with the three assessor bodies when they came up with their warning to "keep on cutting" to the tune of €2bn. But Mr Noonan could only say that taxes at the end of May were running €406m ahead of profile.

Could he extrapolate to what that might, all going well, amount to in a full year? The blunt answer was that he could do that – but he had no guarantee of getting it right.

"We had years before where we've had a good first half and it fell away in the second half," the minister summed up, in a comment that might also summarise the frustrations of many a county team supporter in these summer weeks.

It all brought us rather neatly to the 'light in the tunnel' quote, which is a variation on so many others. It also led Kevin Humphreys, a Labour TD who led the charge ahead of last October's Budget for a €2.5bn adjustment instead of a €3.1bn, to later last week call on Mr Noonan to publish everything he has used so far to support his upbeat predictions. That appears to be a very justifiable call – even though it does, on the face of it, potentially play against Labour's hopes of apparent national economic revival taking them off the political disaster route. But it did not stop the talk-up session that went on over the weekend.

Today we meet with suggestions that, in fact, the €2bn cuts could be far nearer €1bn. Labour leadership contender Alex White went so far as to say it could be a deal south of that €1bn marker.

It is all based on various educated back-of-the-envelope calculations and predictions.

The hope is tax revenues will continue to gather pace; the Central Statistics Office complex recalibration of GDP may play in Ireland's favour; other mysterious things may happen on bank debt.

Against all that we know that, like the poor, the overspending in the health services remains with us. That could be anything up to €500m in 2014.

And there are other imponderables such as the tinderbox that is the Middle East exploding and causing another oil supply shock.

All of that brings us back to where we started. We hope our worst days are over – but for now we have little in the way of really reliable evidence to support this view.

Irish Independent

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