Wednesday 21 February 2018

Noonan to create ‘safety net’ fund for shocks to the economy

The Finance Minister is getting away from the mantra of 'what we have, we spend', writes Fionnán Sheahan

Minister for Finance Michael Noonan with Fionnán Sheahan, Editor of the Irish Independent, at the Department of Finance, Merrion Street, Dublin. Photo: Damien Eagers
Minister for Finance Michael Noonan with Fionnán Sheahan, Editor of the Irish Independent, at the Department of Finance, Merrion Street, Dublin. Photo: Damien Eagers

Fionnán Sheahan

It was nothing to do with formulating Fine Gael economic policy for the General Election. Honest.

But the Minister of Finance admits he was studying Thatcherite policy over the Christmas period.

Michael Noonan has an innocent explanation for 'Margaret Thatcher: The Authorised Biography, Volume 2' by Charles Moore being on his bedside table.

The tome was recommended to him as there's a chapter about the negotiations on the Anglo-Irish Agreement in 1985.

Noonan was Minister for Justice in Garret FitzGerald's government at the time, so he was involved in the process and met Thatcher and then Northern Secretary Tom King.

"I heard there was a lot of material in it where civil servants spoke freely for the first time. I haven't got to that part of the book yet. I'm just coming out of the miner's strike at the moment, having left the Falklands War behind me," he says.

His holiday season was disturbed by a stint in hospital in Dublin after undergoing surgery for fluid in the chest area. Noonan says the consultant described his condition as the "nearest thing to pneumonia".

"I probably laid low longer than I needed to. But I did take the opportunity of having a rest."

The 72-year-old says he has recovered to run again for the General Election.

"I'm feeling good again. I'm up for it."

The Anglo-Irish Agreement is a reminder of Noonan's longevity in politics.

The Limerick TD has been in politics since 1974 when he was elected to Limerick County Council and he has been a TD since May 1981.

The carve-up of the constituency with his running mate Kieran O'Donnell looms and Noonan lists off areas in the city and county where he'll be canvassing.

He has served in government on three occasions as Justice, Industry, Health and more recently Finance Minister. Of course, he also had his ill-fated term as leader of Fine Gael in the 2002 general election.

"I've been up and down. I've had very successful periods and I've had very difficult periods."

He says he prefers to look ahead. This time around, Fine Gael plans to return to government for the first time.

The rising economic fortunes have resulted in comparisons with 1997, but he rejects the notion Fine Gael ministers are influenced by that campaign when Fianna Fáil put more emphasis on straightforward tax cuts - akin to his party's blunt pledge to abolish the USC.

"When we talk about '97, among those who were there now, we kind of say to each other, it was one we should have won. But we didn't, you know. And we say, we're not going to let it slip this time."

Part of the plan is the simple message to the voters to keep the recovery going. Noonan is an author of the three-step plan, which the public will be hearing a lot about in the coming weeks.

In a nutshell, it's about creating more jobs, making work pay more and using economic growth for tax cuts and spending increases.

A new element of the equation is a safety net in the event of things not going according to plan. If the economy is actually overheating, the funds will simply be put towards reducing the national debt.

"If there is a shock, externally or internally, we'll have a contingency fund which we will deploy," he says.

Over the course of the next five years, Noonan says there'll be €10bn available for extra spending and tax cuts.

Out of this pot has to come the cost of abolishing the USC and the 10,000 extra public sector workers the Taoiseach promised last week.

Now Noonan is putting a new category on the table. He's planning to set aside a quarter of the extra resources available to the next government into a 'rainy day fund'.

The move means Fine Gael will not be committing every last euro from predicted economic growth into tax cuts and public spending increases.

The measure is aimed at moving away from the economic philosophy of 'what we have, we spend'.

Instead, the party will pledge to set aside up to €2.5bn of funds, which won't be allocated for any specific promises.

Fine Gael's economic plan will set out the details of tax and spending commitments in detail, along with the new fund.

"Our Long Term Economic Plan will leave a quarter of the available fiscal space unallocated as a 'Contingency and Stability Reserve'.

"The reserve will be a fiscal buffer against unexpected shocks, and will be allocated as part of the annual budgetary process to either additional deficit reduction or to additional budgetary measures, consistent with the needs of economic and fiscal stability, and informed by the advice of the Irish Fiscal Advisory Council," he said.

Fine Gael's plan will also be targeted at attacking Fianna Fáil's past and present economic policies.

Noonan says EU expenditure rules ensure commitments are sustainable by capping the growth of budgetary promises at below the long-term growth of the economy.

He says the rules limit new budgetary commitments to €10-12bn over the five years from 2017 to 2021.

He points out this is half of the budgetary expansion in the last five budgets in the years which preceded the crash introduced by the Fianna Fáil-led government.

Fianna Fáil has its own rainy day fund, for "any further windfall gains from Corporation Tax and other unexpected revenues".

Fine Gael says its plan isn't about windfalls, which EU rules wouldn't allow to be spent anyway. Instead, they're looking at the basic resources coming from predicted levels of economic growth.

Noonan says part of the problem with the arrival into office in 2011 was that the economy needed a stimulus, but the Coalition had to cut spending and raise taxes.

"If you are trying to do counter-cyclical management of the economy, you need resources to do it. So that is the idea of the fund," he says.

The idea of the buffer is to both avoid pouring more fuel on the fire and have a reserve in place, if needed.

His priority will be to put it into building projects.

"If there is no shock and things are running strongly, I would be prepared if I was there to allocate to the investment in infrastructure."

Noonan says his economic plans are based on an economy growing at between 3 and 3.5pc from 2017 to 2021.

Central Bank projections suggest a growth rate of 4.8pc in 2016 and 4.3pc in 2017.

"Already the Central bank is pitching well above the number we are putting as our average."

"And then of course we have the other rule on expenditure that we are not going to spend more than the average growth rate of the economy over the period.

"So we are being very prudent, very prudent," he says.

The minister says the Coalition has broadened the tax base, so there is no reliance on one sector, such as construction. On top of that are the fiscal rules.

He says the buffer is an extension of these plans.

"We want to get away from the boom and bust model of the economy," he added.

Noonan has put his name forward as Minister for Finance in the next term, but he says this is up to the Taoiseach, if the party is returned.

"All I am saying is I am available to serve again in Finance."

He argues the division of the department into Finance and Public Expenditure should remain in place until the economy has fully recovered.

He wants to see "more competition in the banking sector" and new sources of funds for mortgages and lending to small business.

The other area for improvement is reform of the personal tax system, flowing from the abolition of the USC.

Changes to inheritance taxes and a "more benign" Capital Gains Tax regime for people who invest in start-up businesses are also on the agenda.

Back to his aforementioned period as Minister for Justice in the 1980s. Noonan famously revealed the tapping of journalists' phones by Charlie Haughey's administration.

The recent furore over the accessing of journalists' phones by the Garda watchdog, GSOC, and Garda access of phones, brings back memories of legislation he had to pass in the 1980s.

Although he doesn't feel it's the same, the central issue is around judicial scrutiny.

"I understand the net point at the minute is the judge looks at the decisions retrospectively. Now if he was actively involved in advance - it might be impossible, but there must be some way of doing it that is satisfactory," he recommends.

Irish Independent

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