This article appeared in the Irish Examiner Budget Supplement on October 11, 2017
Budget 2018 shows that it takes more than a deep recession and a troika bail-out to rid us of the spirit of Charlie McGreevy. Once again we are back in the era of Finance Ministers spending what they have. We can only be thankful for the EU fiscal rules that limit the damage the political system can do to our economy.
In the aftermath of the Irish economic collapse in 2008, many pointed fingers of blame at economists for failing to provide warnings about what was unfolding. There is some merit to this. Too many economists either weren’t paying attention or ignored the evidence and hoped for a soft landing. However, there were more than enough warnings issued if the government of the time had chosen to listen. Instead they pondered why all those moaners didn’t commit suicide or referred to those opposing the giveaway budgets during an economic boom as left-wing pinkos.
There were noble aspirations to learn our lessons. The Fiscal Advisory Council was, in the words of its first chairman, set up to institutionalise the memory of the crises. It hasn’t worked.
Less than a decade later and the government is again ignoring the warning voices, even though this time they are significantly louder and greater in number. In the weeks leading up to this budget the political debate has been about which of Fine Gael’s and Fianna Fail’s tax promises would be implemented. Now we know it is both. However, in trying to keep this fragile political arrangement in place, the net effect of the tax measures announced yesterday are negligible for most taxpayers.
The government is playing political games with significant economic risks, for the sake of a couple of euros a week in income tax. The economy is approaching full employment and growing strongly. This is before the additional stimulus of a necessary, large house construction programme emphasised in the budget. However, there are obvious and substantial risks to this economic recovery from Brexit and EU and US tax changes. The responsible approach is to be cautious. Tax cuts can wait.
The increase in new tax revenue of €830 million, from increases in commercial stamp duty, excise duty, and the new sugar tax and the very welcome vacant site tax rise, should not have been used for income tax reductions. These tax raising measures are sensible in themselves. The revenue generated would have gone to providing the buffer we may need if the risks to our economic recovery materialise and to offset the stimulus of the housing and infrastructure investment. We persist with pro-cyclical budgets. We learn little.
I'm an economist so many of these posts will be about economic issues. But since everyone is allowed a view on economics I am inclined to go beyond my profession to throw my tuppence ha'penny into other issues.