Echoes of bust to be heard in boom

Sunday Independent (Ireland) - - Comment -

WE live in a so­ci­ety, not an econ­omy, the ar­gu­ment goes. A fuller truth, how­ever, is that a modern so­ci­ety needs an econ­omy to pros­per and a modern econ­omy needs a sta­ble so­ci­ety to func­tion. In the decade dur­ing which the econ­omy failed, so­ci­ety suf­fered greatly through the im­ple­men­ta­tion of harsh aus­ter­ity. Dur­ing those years, there were times when the nor­mal func­tion­ing of so­ci­ety was threat­ened. Thank­fully those days, by and large, have passed, al­though the ills within so­ci­ety are still far from set­tled. It is to be wel­comed, how­ever, that the econ­omy is now in good shape. It should fol­low that the ills within so­ci­ety will be re­solved. In the ab­sence of sta­ble pub­lic fi­nances, how­ever, that will not hap­pen. Worse than that, those threats to the nor­mal func­tion­ing of so­ci­ety may re-emerge.

The State’s bud­getary watch­dog has strongly crit­i­cised the Govern­ment for “re­peat­edly” miss­ing its own fi­nan­cial tar­gets and for fail­ing to man­age the pub­lic fi­nances in a pru­dent man­ner. The Irish Fis­cal Ad­vi­sory Coun­cil has said im­prove­ments in the Govern­ment’s un­der­ly­ing bud­getary po­si­tion have ef­fec­tively stalled since 2015, de­spite the favourable eco­nomic cli­mate. It has claimed that Bud­get 2019, which al­lows for a €4.5bn spend­ing in­crease next year, was €1.1bn above a tar­get the Govern­ment set down only four months ear­lier in its sum­mer eco­nomic state­ment, and was “not con­ducive to pru­dent eco­nomic and bud­getary man­age­ment”. The coun­cil also said re­peated fail­ures to pre­vent “un­bud­geted spend­ing in­creases”, most no­tably in the area of health, over sev­eral years had left the State’s fi­nances ex­posed to the next down­turn. Last week the Govern­ment ap­proved a €645m sup­ple­men­tary bud­get to cover over­spend­ing in the HSE this year, us­ing a sub­stan­tial por­tion of the State’s cor­po­ra­tion tax wind­fall to plug the hole in its health bud­get. The HSE has now ex­ceeded its al­lo­ca­tion by al­most €2bn in the past four years. The Fis­cal Ad­vi­sory Coun­cil has said the Govern­ment is grow­ing spend­ing at an un­sus­tain­able rate and is fail­ing to use the up­swing to in­su­late the econ­omy against the next down­turn. It has said that while risks to the econ­omy are not as high as they were in 2006 and 2007, “there are echoes of it”. This is an alarm­ing state­ment, which should serve as a warn­ing to the Govern­ment and all pol­i­cy­mak­ers.

In de­fence of the Govern­ment, the Taoiseach, Leo Varad­kar, and the Fi­nance Min­is­ter, Paschal Dono­hoe, while ac­knowl­edg­ing the crit­i­cisms of spend­ing, said this was done for good rea­son be­cause of the need for spend­ing in hous­ing and health. In it­self, this has echoes of the boom-time govern­ments which pointed out that op­po­si­tion politi­cians had urged it to spend more. Both men also said that the Eu­ro­pean Com­mis­sion had found the bud­get com­pli­ant with the Sta­bil­ity and Growth Pact.

The warn­ing signs are there, how­ever. When these warn­ings are set against the risks as­so­ci­ated with Brexit, global trade wars and a slow­ing world econ­omy — a nat­u­ral down­turn in the cy­cle is com­ing — then the Govern­ment must take heed. When the Govern­ment has it does not nec­es­sar­ily mean it should spend it — or spend it all. It would be un­for­giv­able should an­other boom be blown. We live in a so­ci­ety, but its sta­ble func­tion­ing is driven by a healthy econ­omy.

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