Saturday 17 February 2018

'No change' to Fiscal Council's budgetary advice

Economist says IMF's report unlikely to affect the Irish case

Colm Kelpie

Colm Kelpie

THE body advising the Government on its budgetary targets will not be altering its advice following the IMF's admission that it underestimated the damage done by austerity.

Professor John McHale, chair of the Fiscal Advisory Council, said they would be looking closely at the world body's change of tack on the severity of austerity on growth in European peripheral countries, but claimed the evidence did not appear to be particularly strong in the Irish case.

In the opening session of a two-day economic conference in Galway, Prof McHale also warned that there was a 40pc probability that Ireland may not stabilise its debt-to-GDP ratio by 2015, despite the Government hoping that it will peak next year.

"We certainly will be looking at the IMF findings, suggesting that the damage done to the economy with the adjustment might be bigger than previously believed," Prof McHale said.

"But the evidence doesn't seem to be particularly strong for that in the Irish case. So we will be looking at it and looking at it carefully, but at this point my sense would be that it mightn't change our advice."

Earlier this week, the IMF admitted in its annual report that it had underestimated the impact on the Irish economy of austerity policies.

Prof McHale said there was little room to ease the Council's stance given the fragile state of the economy.

In his presentation, the NUI Galway economist also painted a bleak picture by stating that, even by 2015, there existed a 40pc probability that Ireland's debt-to-GDP ratio may not have stabilised given the uncertainty surrounding growth prospects.

"It would make it much more difficult to regain our credit worthiness and ultimately our economic sovereignty," he said.

Answering questions from the audience, Prof McHale also said that the consequences for a country defaulting on its debt could be "quite devastating".

"Certainly defaults are costly and should be avoided," he said.

The first day of the conference in the Ardilaun Hotel, organised by the Dublin Economics Workshop and attended by Communications Minister Pat Rabbitte, also included presentations on child benefit from the parent and carers' group Curam, and addresses by business body Ibec and the left-leaning think-tank the Nevin Economic Research Institute (NERI).

Aine Ui Ghiollagain of Curam proposed that childcare and education credits should be awarded to each child as an indirect payment to the person who cares for and educates them. The credits would be subject to a flat tax and social insurance and pension deductions when cashed in, she claimed.

NERI predicted that the Government would miss its 2015 3pc budget deficit target, and said unemployment would have been at 20pc if people had not emigrated.

Mr Rabbitte told the Irish Independent that it was important to hold such economic debates.

But he added: "I don't think that I heard any silver bullet that will get us out of the economic morass."

Irish Independent

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