Vincent Wall decodes Michael Noonan's economic teachings...
I’ve got it now...this “Fiscal Space” yokey... at least I think I have after Master Noonan explained it again to the assembled class of hacks at yesterday’s launch of Fine Gael’s Long Term Economic Plan.
The Master’s tutorial, delivered from a bunker close to the north bank of the Liffey and visually resonant of a war time government in hiding rather than the country’s largest party setting out its compelling stall, kind of went as follows:
“You see the difference between those nerdy guys over in the Irish Fiscal Advisory Council, (who wouldn’t spend their communion money by the way), who warn that the likely additional tax and spending wriggle room available for the next government is just over €3bn, and the €12bn I say it could amount to, is actually fairly easily explained, if you’d just pay attention...
Now firstly, ye must have been asleep when it was explained that €2bn of the notional €12bn is already accounted for due to increased capital investment and public sector pay arrangements announced by my good buddy Brendan Howlin last year.
So we’re down to €10bn now - if you're keeping up.
Another €2bn or so is available due to the generosity of the folks in Brussels who have rewarded our good behaviour by confirming that if we manage to produce an exchequer funding deficit of 0.5% from 2017 onwards, they’ll take it that we’ve actually balanced our budgets as required.
So, now we’re down to a difference between the nerds and the people like us who actually have to run the country, that's about €5bn – the gap between just over €3bn and just over €8bn.
And the principal elements of this gap reflect the fact that the pointy-heads are assuming that the next government will raise all social welfare benefits over each of the five years by the prevailing rate of inflation; that tax credits will also be increased in line with the cost of living and that new public sector pay increases will automatically be implemented in 2018 when the current Lansdowne Road Agreement expires.
Now you simple-minded hacks might think all those assumptions are pretty reasonable on the part of our friends in the Fiscal Council, whom we put in place by the way and whose counsel we always respect, but sure even the corner boys out in Moyross know that’s not the way things happen.
The next government, whoever it may be (stop sniggering there Minister Harris), will decide whether or not to raise social benefit rates and income tax credits on a year by year basis in each budget and not in a block in advance.
And you know, even though we’re promising that the next five years are going to deliver an average of at least 3% economic growth, we (sorry, the new government) might decide not to use the fiscal space in that way and to use it in a different way, like building a new national stadium in Castletroy, for instance
And though ye might think that we’ll have no option but to increase public sector salaries come 2018, if we want the lights to stay on and the teachers to get out of bed, that will follow a process of negotiation and we might catch them napping next time out and get a better deal for the taxpayer.
So ye can’t build in that kind of guaranteed expenditure over a five year-period in advance, do ye follow?
And as for this fuzziness over what we meant by a “rainy day fund” - God almighty - have ye ever read Angela’s Ashes? It rains all the time in Limerick, so it’s not a special fund at all.
Naw, seriously though, what we mean is that we’ll keep about €2.5bn of our projected spend from the fiscal space until after 2018, and if there’s an economic shock at that stage (as those bowsies in the Fiscal Council are almost wishing upon us), then we’ll use that money to spend on extra investment or to boost demand or whatever we think will best boost the economy.
If there’s no shock and we continue to get our lovely-jubbly 3% growth per annum, then we’ll use the fund to further reduce the national debt.
Simple really, it’s all about keeping the recovery going, about being prudent and about not listening too closely to economists or other political parties."