Dan O’Brien:
Government won’t take the prudent option
HOW often have you spent more than you have earned? Most people have done so at some point in their lives, but few overspend year after year. Living beyond your means for any sustained period of time will eventually come back to bite you.
Most people know that and try to avoid going into the red. The prudent majority know, too, that when times are good it makes sense to salt something away – there will always be an unexpected outlay or, worse still, a rainy day.
With a little over a month to Budget 2019, the Government’s current plan for next year is to do what has been done every year for 11 years on the trot: spend more money than it takes in. It will do that despite more than half a decade of good economic times.
Last week the most important economic indicator – employment – showed that near-boom conditions continued in the Irish economy. Despite all the uncertainties around Brexit and transatlantic trade, businesses across the country are hiring to beat the band. There have never been more people at work in this Republic.
A tighter jobs market is causing pay packets to swell. Another set of figures last week showed that workers’ earnings are rising at by far the strongest clip since the crash a decade ago. In a low unemployment environment, companies are competing with each other for increasingly scarce workers.
This is not only benefiting those at work and those getting back to work. This week the latest tax revenue figures showed that the amount of cash flowing into the State’s coffers is growing in line with a robust economy. Thanks to strong jobs and pay growth, income tax and PRSI revenues were up by a robust 7pc in the first eight months of the year compared with the same period last year. Other revenues are growing at almost the same pace. Happy days? Not quite.
It is the dismal duty of columnists who can count to point out to readers, who are likely too busy getting on with their daily lives to pore over budget figures, that the Government still won’t do the prudent thing. And that is despite having economic tailwinds that should make balancing the books a fiscal doddle.
From Sweden in the north to Cyprus in the south, many other prudent peer countries have shown the way. And they are managing to get their public finances in order with weaker economic tailwinds than Ireland.
The sensible Swedes have not enjoyed an expansion as strong we have, but they got their public finances back into the black as long ago as 2015. They have been running budget surpluses ever since.
The Cypriots, who suffered a banking crisis and massive recession only five years ago, balanced their books by 2016. They ran a budget surplus of 2pc of their GDP last year. They are on course for a similar surplus this year. The European Commission is forecasting that they will do it yet again next year.
The Cypriots’ surplus of revenues over government spending is the sort of cushion Ireland’s public finances need to reduce the risk of a return to austerity if Brexit bites, Trump starts a trade war or the Irish economy’s long period of expansion simply runs out of puff.
Regular readers of this column will know your correspondent frets about the consequences of losing control of the public finances. But it is not just me. This week, the Department of Finance published its own annual report on the State’s indebtedness. There was plenty in it to fret about.
The mandarins pointed out that in only two countries on the planet are citizens burdened with more public debt than we Irish. The Government owes €42,000 for every man, woman and child in the State. Per person, only the Japanese and Americans owe more on behalf of their governments.
The US and Japan are, respectively, the biggest and third-biggest economies in the world. Ireland is tiny. Both of those mega-economies have records as financial safe havens. Ireland suffered the ignominy of an IMF bailout within the past decade after money haemorrhaged out of the country and nobody would lend a cent to the State.
“Continuing to run deficits while simultaneously carrying a large debt-stock increases the vulnerability of the public finances to an economic shock” was the dry verdict of the mandarinate in their report this week.
The first duty of the State is the security of its citizens. Alas, the Irish State has too often been a source of economic insecurity for citizens by making economic downturns worse, rather than mitigating their effects. Having the capacity to mitigate downturns requires the Government to be taking in more money than it is shelling out in the good times. That leaves leeway to avoid tax hikes and spending cuts in periods of slow growth or outright slump. Despite everything, that lesson has not yet been learned.
From Sweden in the north to Cyprus in the south, many other prudent peer countries have shown the way