McHale defends austerity proposals

THE CHAIRMAN of the Irish Fiscal Advisory Council has defended the council’s call on the Government to implement greater austerity measures in the forthcoming budget, saying its assessment “was not taken lightly”.

Prof John McHale, chairman of the five-person council established in June to monitor and assess the Government’s fiscal policy, was addressing the joint Oireachtas committee on finance, public expenditure and reform yesterday.

In its first report to the Government last month, the council urged it to seek €4.4 billion in savings in the forthcoming budget, much more than the €3.8 billion subsequently earmarked.

Prof McHale told the cross-party committee the scale of Ireland’s debt, and the fact the debt to gross domestic product ratio would reduce at a slow rate, was the reason why the council favoured greater austerity.

“We believe that fiscal austerity does slow the economy, so it’s with great care and concern that we would advocate future austerity. But against that we have to weigh up the costs and risks of debt build-up,” he said.

Asked by Fianna Fáil Senator Thomas Byrne if the council was disappointed that members of the Government had publicly disagreed with its recommendations, Prof McHale said that the body performs an important role.

“Even when the Government disagrees with us, the fact that they do respond, and give clear reasons why they disagree, is important.”

He said the council’s main value will be in the long term. “We will endeavour to raise the political costs of undertaking a bad fiscal policy,” he said, adding that huge fiscal policy mistakes had been made by governments in the past.

He stressed the independence of the council, a feature reinforced by the fact that council members carry out their duties on a voluntary basis.

“Because we don’t have to get elected, or are dependent on the role for our careers, makes it easier for us to think about the long term.”

Council member and former International Monetary Fund staff member Dr Donal O’Donovan stressed that the council had “an arm’s-length relationship” with the Department of Finance, which is not privy to the reports at any stage.

Council member Sebastian Barnes, from the OECD, said the international component of the council also contributed to its independence and avoided the “group think” that characterised the Irish economic boom.

The five members of the council are Prof John McHale, Dr Donal O’Donovan, Prof Alan Barrett, Sebastian Barnes and Róisín O’Sullivan, an associate professor in economics at Smith College in the US.

The council will present its second report in the spring.

Asked by Fine Gael TD Olivia Mitchell if a body such as the fiscal council was inherently cautious in terms of strategy, Prof McHale said that, in prior years, he and his colleagues, in other forums, had argued for less frontloading of fiscal adjustments.

He also pointed out that the Swedish fiscal council had recently called for expansionary measures, and the Irish Fiscal Advisory Council would do so if necessary.