herald

Monday 11 December 2017

Keep the hairshirt on, lads? Not with an election coming up

With the austerity consensus having evaporated, Finance Minister Michael Noonan will ignore the advice of the Fiscal Advisory Council to stick with his previous plans to take another €2.1bn out of the economy in next month's Budget.

Three weeks from that day and it's already as clear as daylight that the fiscal hawks have been routed.

As the economy has begun to recover, the political pressure to ease off on austerity has become irresistible. When he delivered his last budget 11 months ago, the Finance Minister predicted one more austerity Budget.

UNVEILED

A further €2.1bn of tax increases and spending cuts was to be taken out of the economy in the Budget due to be unveiled on October 14.

That was then and this is now. Since then, our fledgling economic recovery has taken flight with Mr Noonan now predicting 4.5pc GDP growth in 2014. Private sector economists are being even more optimistic pencilling in GDP growth of 5pc or even higher.

The strengthening of the economic recovery has fed through into lower unemployment with the number of people at work increasing by almost 32,000 over the past 12 months.

More people at work has, in turn, contributed to higher tax revenues with the total tax take running almost €1bn ahead of target for the first eight months of the year. Economic growth on the scale now being predicted by Mr Noonan will push up tax revenues even further.

With the buoyant economy having boosted tax revenues and both of the government parties after taking a kicking in last May's European and local elections, the political appetite for further austerity has virtually completely vanished.

Nothing concentrates a politician's mind more quickly than the prospect of electoral mortality. With a general election at most 18 months away, everything Mr Noonan and his Cabinet colleagues do from now on, will be largely governed by electoral considerations.

This means that if the government can reach its target of a 2015 budget deficit of less than 3pc of GDP with fewer tax increases and spending cuts than had previously been planned then so much the better. In fact, the government is dangling the prospect of some modest tax cuts in next month's Budget.

The apparent slackening of the government's fiscal rigour has brought howls of protest from the Fiscal Advisory Council, the group of economists established to advise the government on budgetary matters following the Post-Celtic Tiger economic collapse.

impossible

Supposedly independent, the "wise men" of the Fiscal Advisory Council have been given the unenviable - some would say impossible - task of keeping this and future governments on the fiscal straight and narrow.

Not surprisingly, it has reacted strongly, being moved to warn the government that it should stick to its previous target of a further €2.1bn dose of austerity in 2015.

"The Fiscal Council remains of the view that the most appropriate course of action is to implement the final instalment of the fiscal consolidation plan [i.e. €2.1bn]", is how it diplomatically puts it in its pre-Budget statement.

Which, translated into plain English, can be taken to mean that the government shouldn't even think of deviating from €2.1bn of tax increases and spending cutbacks.

Keep the hairshirt on, lads!

And guess what? Mr Noonan and his colleagues will cheerfully ignore the Fiscal Advisory Council's warnings.

With an election to fight in a year-and-a-half, the Council's concerns about possible future dangers will fall on deaf ears around the cabinet table.

Coincidentally, the Fiscal Advisory Council's warnings come at the same time as the Financial Times heaped praise on Ireland.

"For seven years its government and long-suffering people have taken the toughest of choices", gushed the moneymen's favourite paper.

While Mr Noonan wouldn't be human if he didn't take some quiet pleasure from the FT's praise, he won't allow it to distract him from the political imperative, which is to do whatever is necessary to win the next election.

If this means going easy on austerity then so be it - no matter what the Fiscal Advisory Council has to say on the matter.

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