Monday 19 November 2018

Chance to cut debt is being squandered

Public spending rising more quickly than inflation and tax giveaways - that's not what you'd call prudence

The problem of economic management in Ireland has a straightforward backstory. Stock image
The problem of economic management in Ireland has a straightforward backstory. Stock image
Colm McCarthy

Colm McCarthy

Despite heavy indebtedness of both State and households, the Government plans to run another budget deficit next year - even though it expects 2019 to be the seventh straight year of a vigorous economic expansion. Meanwhile it professes commitment to "budget balance over the cycle" and ministerial speeches are sprinkled with genuflections to Prudence, the current goddess of economic management.

If seven years of expansion and clear evidence of tight capacity are not enough to propel the budget into surplus, how long precisely is the cycle over which surpluses and deficits are to balance out? Ten years, or 20?

The problem of economic management in Ireland has a straightforward backstory. This small, open and volatile economy has no currency of its own and hence no control over monetary and exchange rate policy. It has once again become heavily indebted and has a miserable record of macroeconomic mismanagement stretching back 40 years. Downturns have regularly been exacerbated by the incapacity of government to pursue countercyclical policies when most needed.

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