Thursday 22 February 2018

Marc Coleman: Forget referendum, real test for Coalition is kickstarting market

Our politicians could squander the chance to reboot the economy by buying votes, says Marc Coleman

As recent polls show, the Government's honeymoon is now well and truly over and its first real test has begun. And no, I don't mean the referendum. The real test facing the Government concerns plans for an economic stimulus package.

This column has always argued that the property market has the capacity -- if government policies are right -- to recover to 2004 price levels. Last Monday the Central Bank produced evidence supporting this. A few days before, the Troika gave the Government the green light to invest up to half the proceeds from privatisation back into the economy. With Francois Hollande likely to become French president today, the growth agenda is getting the green light in Europe as well. But will the Government squander the chance to kickstart the economy by trying to buy votes in the referendum? Or will it use a stimulus package to ease negative equity and boost confidence, spending and jobs? That is the test the Government faces now.

Politicians -- particularly left-wing ones -- don't appear to have learnt from previous crises: as Obama showed in the US, stimulus packages that rely on tax cuts work while those based on government spending fail. The left does have a point regarding demand management, however: creditor eurozone nations are still growing and with better co-ordination of economic cycles they could be doing more to share that growth with debtor nations like Ireland. But that growth must be private sector growth. Artificial growth based on pork barrel projects fail. They always have and they always will. At home there is a similar challenge: to share growth between "creditor" sectors (exports) and "debtor" sectors (property and construction). And there isn't much time to act: last week John Whelan of the Irish Exporters Association said that export growth would decelerate this year.

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