Central Bank chief Gabriel Makhlouf couldn’t have got his timing better when it came to publishing his pre-budget letter to finance minister Paschal Donohoe.
The letter was written at the end of July but only published last Wednesday, just 24 hours before the Government was due to announce details of its big housing plan committing to a housing spend of €4bn per year for the next four years.
Makhlouf should be praised for asserting his independence from Government and calling it as it he sees it. He warned in very plain language about the risks to the economy from higher State borrowing without further tax increases.
He did not mince his words.
The Government has committed to much bigger budget deficits in the years ahead. Its Summer Economic Statement (SES) targeted around €18bn more in borrowing than it had suggested earlier this year.
Makhlouf said there was a “risk that higher Government spending and tax changes — as well as resulting higher debt — could generate excessive inflationary pressures, leading to the emergence of damaging imbalances in the economy”.
The SES is assuming a €7.4bn deficit in 2025 which will be covered by additional borrowing.
The governor of the Central Bank is well placed to give an honest account of the risks that may be inherent in a Government fiscal plan for the years ahead. He is also very well placed to be pretty well ignored.
After the last crash the Government set up the Irish Fiscal Advisory Council which has been very forthright with warnings about exchequer and economic risks.
But unlike Central Bankers or economists, politicians have to get re-elected. This means they have to balance the risks with the pragmatic need to get things done.
The reality is that the Government knows successive housing policies have not delivered and the coalition parties face a roasting at election time if they don’t make some kind of grand major commitment to fix the problem once and for all.
Part of the context to this is how the cost of Government borrowing remains incredibly low and Covid has led to a suspension of EU exchequer borrowing rules.
The other real politik at play here is the fact that the SES was a statement of intent rather than a full commitment.
In other words, it provided the Government with an opportunity to tell the electorate that it would continue to borrow and spend money to fix problems.
Who knows what the economic or fiscal context for a budget will be like in two years’ time, never mind 2025. Who knows who will even be in government?
Look at the ease with which the Government message changed in a matter of months from a plan to practically balance the budget in 2025 to running up a €7.4bn deficit.
There is an element of ritual about the pre-budget submission process. Interested parties usually say what you expect them to say. Interest groups bang the table, opposition parties bang the drum and economists warn.
It all only becomes a problem when on certain occasions things actually do go pear-shaped and the economists are proven right. But that will be for another day.
No matter how much Facebook is fined, some would say it was never enough. The scale of the finances of the tech giant are truly astonishing. So when it emerged that WhatsApp, owned by Facebook, was fined €225m by the Irish Data Protection Commission for GDPR breaches, some people said it still isn’t enough to bring about deeper change.
The big story was how the Irish regulator was considering a much smaller fine of around €50m, until pressure came from EU counterparts to increase the amount.
Big businesses don’t like paying fines. Critics of the scale of the Facebook fine have a point. Fines are supposed to be a penalty. Nearly a quarter of a billion euro is a huge sum but it probably isn’t going to make a significant difference to a company of Facebook’s scale.
The market capitalisation of Facebook is running at just over $1trn. In the last month, its market capitalisation has increased by $15bn. Facebook founder Mark Zuckerberg has seen the value of his 14pc shareholding in Facebook increase in value by $2.1bn in the last month.
But of course market values can rise and fall pretty quickly. So, let’s take its second quarter figures. It took in $29bn in that three months, up from $18.6bn for the same period the previous year.
Its net income in the three months was $10.3bn. It spent just under $2bn on R&D which was equal to $166m in a working week. Put in that context, this fine is equal to less than seven days of its R&D spend.
Nevertheless it is one of the biggest fines relating to GDPR. The WhatsApp ruling came after Luxembourg fined Amazon a record €746m in July for breaching GDPR and Ireland fined Twitter €450m in December for not informing regulators about a data leak within 72 hours.
Breaches like this are not criminal offences but need to be taken seriously. One option is to look at breaking up Facebook given its size, scale and reach. To put it in context it has an estimated 200m users in the US, equal to 67pc of the population.
That is a powerful position in which to be.