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We've done the impossible - now for the difficult bit


Ireland may even beat the average 10 years for recovery after a financial crash.

Ireland may even beat the average 10 years for recovery after a financial crash.

Ireland may even beat the average 10 years for recovery after a financial crash.

REMEMBER the switch from miles to kilometres? In a single weekend, every sign in the country was changed. Despite the best efforts of the media pack (especially the foreign one) to portray a failure, not the remotest boreen with a sign still in miles could be found.

It led me to devise an Irish version of Trollope's phrase (and the US army's motto) - the impossible we do at once, the difficult takes a little longer, but the ordinary is just too much to ask.

Unkind? Or merely silly? Either way, it came back to me in the post-Budget musings.

As for the impossible, it was widely held that this described the task of coping the hard way with a deficit of 15pc of national income while the economy collapsed like a sandcastle, and the banks shut up shop. That was a perfectly sensible view but, to a considerable extent, the impossible seems to have been done.

It was also done at once, in terms of the timescale for this sort of thing. One can argue about the moment when the impossible became merely the difficult, but it was certainly no later than 2012, and perhaps earlier.

Now for the the difficult bit. If it is done well, Ireland might even beat the average 10 years for recovery after a financial crash.

That would be truly remarkable, since this was one of the worst such crashes ever recorded, and perhaps we should not expect it. Even 12 years, taking us to 2020, would be quite an achievement and looks quite possible.

But the difficult may take a little longer than the impossible. There is a strong sense, after the Budget, of the Government struggling to find a narrative to fit the early stages of recovery.

Unless it does so, it will be unable to apply the policies appropriate to that state of affairs.

The task is not to declare the crash over but to continue to strengthen the public finances so that future governments can manage the inevitable ups and downs of the economy when it is really over. This is the counter-cyclical strategy espoused by Mr Noonan, EU rules and every politician who speaks on the subject.

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The recent bout of nerves on financial markets was a timely reminder that Ireland is not yet in a position to counter another recession. It might find itself having to reimpose austerity, and further depress a weakening economy, in order to maintain its ability to borrow on the markets.

It will require some years of careful control of the public finances before it is feasible to borrow more to combat a downturn. The sooner this is achieved the better, which means as tight control as possible. It will require the government to run budget surpluses from 2017 onwards. How difficult will it be to persuade the public that such a policy is in its own longer term interests?

Very difficult, would seem to be the answer after the Budget. Its central message was that citizens could look forward to several years of tax cuts. The fact is that they can look forward to several years of an increasing tax burden, even though this might not require actual new taxes, if they are to have any chance of a secure stable future.

Is anyone prepared to say so and explain the necessity of tax revenues exceeding public spending by around €4bn, and how this might be achieved? In his speech, Mr Noonan pointed out that everyone earning more than €70,000 will pay 52pc tax on half of that; that the top 1pc of earners will pay 21pc of all income taxes, while three-quarters of the working population will contribute one-fifth.

There was a time when, coming from a Fine Gael minister, this would have been a complaint, but it sounded much more like a boast. Even if the party is now a convert to the idea of a steeply rising income tax system, it still has to explain how such a structure can possibly generate the necessary revenues.

There were a few ministerial efforts to mention "broadening the tax base" in the furore over who should pay what for water. Admittedly, it is not much of a catchphrase. Proclaiming that this three-quarters of the workforce should contribute more to the running of the state (one-third perhaps) would be one helluva catchphrase, but we know what the political consequences would be.

The concentration has been almost entirely on who gets what, to the exclusion of what is realistically available. As we have seen in both crash and recovery, income taxes and labour levies like the USC are volatile, moving down and up with employment and pay levels. So too with VAT and excise duties. A greater share of revenue must come from more stable sources such as, ahem, property taxes and water charges.

On the other side, public spending is already proving difficult, with even the best analysts struggling to make sense of the figures. How, for instance, is spending on goods and services meant to fall by more than 3pc next year? Is the Irish Medical Organisation correct when it says there was no increase in the health budget? Answers on a postcard.

There is certainly little guidance for the immediate future. The Budget forecast until 2018 has no figures for future spending or the impact of tax changes. The Department of Finance explains this by saying there is too much uncertainty about the fiscal rules. So much for the four-year plan we were promised - sort of.

It is different over in the Department of Public Expenditure and Reform. It tells us that day-to-day spending will rise by just €230m, or half a percent, over the next three years. That is before future Budget changes, of course. But it also tells us that current spending next year will be the same as 2013, which was not quite the tone of Mr Howlin's speech.

Back in April, the message was that current spending would fall 5pc by 2018. The economy has improved since then, which does leave room for changes, but clarity has not.

A cynic - if there are such entities in Irish politics - might wonder whether this is hiding a retreat from the essential task of stabilisation.

There are considerable risks in taking too long over the difficult. The first is that things do go awry abroad. The other is that we never actually get to what to the stage of routine management and see whether we can do better this time.

"Routine" involves balancing the budget across the ups and downs, with surpluses in good times and borrowing in bad, while keeping the national debt ratio on a downward trajectory. Just don't say, "But that's impossible."

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