herald

Monday 16 July 2018

Squeeze us tighter in the Budget, minister, and you risk all hope of reviving confidence

BEWARE: There are signs our fightback could be export-led, so it's all the more vital that our leaders tread warily

IT is not often that we hear good news, or someone talking with confidence about the future of the Irish economy.

Over the past few weeks we have heard various domestic economists predicting an assortment of possibly dire outcomes ranging from a possibly deeper depression, or us having to abandon the euro and suffering the massive costs of returning to the punt.

The news has not seemed much better coming from Government Buildings, with ministers talking of deeper spending cuts and higher public service charges, including the return of third-level fees.

Meanwhile our 'best friends forever' in France and Germany, Merkel and Sakozy, have been doing what they do best: charging off like a low-rent super duo, spinning and speculating in public about what they might do in a few months' time, while all the time never missing an opportunity to miss an opportunity.

It is refreshing, if not miraculous, therefore, to hear someone offering us some cause for confidence ... and for two days on the trot this week.

We so rarely hear anything positive, we risk missing it, or dismissing it as typical silly season stuff.

First came a very positive and complimentary article in Wednesday's Financial Times by two noted Oxford University economists about Ireland's future. This was followed by an equally optimistic analysis from the employers' body here, IBEC.

One of the most important points the FT article makes is that "a steady uptrend in exports has been under way (in Ireland) for some time."

This is significant. IBEC's Danny McCoy echoed the same point in radio interviews that day. The tough decisions taken for recovery by the last government, and the resulting pain experienced by virtually every household in this country since mid-2008, are now paying off.

The uptrend in exports has been under way since early last year. It was shown in the record export figures for 2010. All the signs are that 2011's figures will be even more impressive. Irish exports have been increasing at a time when the global economy has been stagnating.

They are likely to increase again as the global economy grows, but only if we maintain the broad economic approach adopted between 2008 and 2011. This is not to say that all is well and that the good times are-a-coming, but it is the time for the Government and the rest of us to try to leverage this glimmer of light at the end of the tunnel into some return of self-confidence.







buoyancy

The critical factor for Ireland is the return of some confidence and buoyancy to the domestic economy. We need to feel and know that we are through the slump and that things have bottomed out before we will feel confident to start spending again. There are several ways of doing that. One of those ways most definitely not to do this is to raise the prospect of deeper cuts than already forecast.

The outgoing government had committed the economy to closing the gap between what we spend and we earn by a further €3.6bn in this year's Budget. A few weeks ago Finance Minister Michael Noonan speculated publicly he might increase this figure closer to €4bn. Such a move does not help convince people that the worst is over.

The same applies to the 0.6pc pension levy he brought in as part of his jobs budget/initiative/package in May.

The documents released since suggest that the levy risks costing employers more than they can afford and have a negative effect on the solvency of thousands of pension schemes.

The plan for recovery was started in 2008 -- this is the year and this is the Budget when this recovery plan can be brought to a conclusion. That is a delicate balance that must be struck in this Budget.

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