Budget targets will be hard to achieve
The stability pact update (SPU) contains some of the most detailed budgetary information published by the Government
Michael Noonan, Minister for Finanace. Photograph: Alan Betson
Given how feeble the Oireachtas is at checking and balancing ministerial actions, it is a wonder that governments over the decades have not veered towards despotism.
The rubber-stamp nature of the national parliament was highlighted yesterday when Minister for Finance Michael Noonan released an obscure-sounding, but very important document.
The stability pact update (SPU) contains some of the most detailed budgetary information published by the Government. For the first time, it has set out the broad spending and revenue parameters to be contained in budget 2016.
That is particularly important because it will be the last budget before the scheduled general election takes place early in 2016 (provided, of course, the Coalition holds together for another three years).
All EU governments are obliged to send these forecasts to Brussels by the end of April. The Irish Government published its SPU in late afternoon on the last day of April – in other words, at the last possible moment.
Members of the Oireachtas finance, public expenditure and reform committee received the 60-page document just two hours before Noonan spoke to them about it.
So not only did lawmakers have no input into the framing of these important budgetary matters, most committee members knew little or nothing about the SPU in advance of its publication yesterday.
Without the strictures of EU membership, one wonders how little budgetary information would be made public.
All this raised suspicions that something politically toxic might be buried in the report – such as further austerity beyond the 2015. In the event, that was not the case.
The budgetary and economic projections in the SPU are reasonable and in line with other forecasters’ projections. There is nothing rose-tinted in it – a jobless rate of more than 12 per cent in 2016 is truly awful, but realistic.
In a forecast described as a “purely illustrative scenario” for the 2017-2019 period, in which the economy is expected to grow strongly, unemployment is projected to remain stuck at 11 per cent.
If officials in the Department of Finance see depressing double-digit joblessness into the next decade, they cannot be accused of ignoring the inherent fragility of the Government’s debt position. They list all the foreseeable risks to recovery. And there are many.
Debt sustainability depends on economic growth gaining momentum more than anything else. If it were to falter, sovereign default would be back on the agenda.
In this regard nominal GDP is the key number to watch, because the key indicator of sustainability is debt as a percentage of that figure.
In cash terms, the economy is projected to surpass the peak of 2007 by 2016, according to the figures in the SPU. Achieving this will not be easy in an era of low inflation, a weak domestic economy and recession in Europe.
Consider the numbers. By 2010 nominal GDP had fallen to €156 billon. By last year it had rebounded to €163.3 billion.
If it reaches only €170 billion by 2016, the debt to GDP ratio would be 124 per cent, and that is based on the highly implausible assumption that lower growth would have no impact on the debt stock.
The situation remains fragile. If the era of austerity does not end in 2015 don’t be surprised.