Sunday 25 September 2016

Can Noonan and Howlin stick to the most prudent and responsible course?

Published 17/09/2015 | 02:30

Michael Noonan
Michael Noonan

Two sets of experts, with two different opinions on the Budget plan. Moody's has poured cold water on the Government's claim that its €1.2bn-€1.5bn tax cut and spending plan for Budget 2016 is prudent, saying there shouldn't be any giveaways at all given the high level of public debt.

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But the State's budgetary watchdog, the Fiscal Advisory Council, has softened its stance and now appears to be on board with the Government's plan, arguing the latter might just comply with tough EU rules even if it does loosen the purse strings a little bit.

Given Moody's ultra-cautious view on Ireland, its stance isn't terribly surprising.

The ratings giant disappointed last week when it stubbornly refused once again to nudge Ireland into the coveted 'A' category despite the fact that fellow agencies, Fitch and Standard & Poor's, have already done so.

The reason? Debt and politics. By easing up in the Budget, the ratings agency may fear an element of care-free abandon could set in, while the election next year adds another bout of uncertainty.

It correctly points out that the open nature of Ireland's economy means it's more susceptible to shocks, and our public debt pile, while reducing, is higher than the average of other A-rated countries.

But its argument that the Government could be at risk of breaching tough EU budgetary rules by easing up in Budget 2016 is essentially contradicted by today's report from the Fiscal Advisory Council.

Just a few months ago the council shared that view. Indeed, its hard-hitting assessment in June caused a bit of a stir.

But now, while it agrees the debt is still worryingly high, it believes the faster-than-expected recovery could mean the €1.5bn expansion plan complies with the rules, as long as the Government doesn't go any further.

And that latter point is really the crucial element now. Rightly or wrongly, the debate has moved beyond Moody's argument as to whether there should or shouldn't be an expansionary Budget.

The buoyant economy and the higher-than-expected tax take each month left it a given that some form of giveaway Budget, even a mild one, was politically inevitable.

The debate has now shifted to how to responsibly spend the money, be it through much-needed strategic public investment, which is below par as many have pointed out, or in other ways that would have an economic benefit.

The question for Michael Noonan and Brendan Howlin is no longer whether there should or shouldn't be an expansionary Budget, but whether they can resist the competing demands from the myriad interest groups, and from within political ranks, to potentially ease up that little bit more amid surging revenues and a looming election.

Ironically, their political credibility going into the election campaign hinges on whether they stick to the plan they've been touting for months as the prudent and responsible course.

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Irish Independent

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