Who will listen to the Cassandras?
Cantillon: Patrick Honohan cautions the Government should continue to keep tight rein on public finances
Patrick Honohan, Governor at the Central Bank of Ireland: like the Greek tragic hero however, his prophecies – while timely and probably true – may well be ignored. Photograph: Dara Mac Donaill/The Irish Times
The economic Cassandras are hard at work these days, led yesterday by no greater authority than the Governor of the Central Bank. Like the Greek tragic hero however, his prophecies – while timely and probably true – may well be ignored.
Patrick Honohan yesterday cautioned that the Government should continue to keep a tight rein on the public finances “to ensure a more durable recovery” in the economy. He noted that debt levels in Ireland, in the public and private sectors, “remain elevated” and “continue to pose a significant test for all policymakers”.
If he needed some support to bolster his case for caution he could turn to the ESRI, who last month warned there was very little wriggle room for tax cuts at this time.
In a similar vein, the mandarins at the Department of Finance published their Stability Pact Update. It burst the growing bubble of belief that austerity is now behind us, restating that the planned €2 billion adjustment remains central to the arithmetic, and will go ahead even with its positive growth forecasts.
The ESRI had indicated the 3 per cent deficit target for 2015 could be achieved without any further adjustments, other than the introduction of water charges, fuelling expectation of some sort of retrenchment on the planned adjustment.
The Department’s report offered a starker view. For the three budgets up to 2018, and until the deficit is reduced to zero, Minister for Finance Michael Noonan will only be in a position to reduce income tax or widen the bands, as he clearly wants to, by increasing taxes or implementing cuts elsewhere. Essentially, the budgets will have to be tax-neutral. Mr Honohan, it seems, has strong support for offering a sober outlook. One suspects however, he might as well have been a teacher lecturing students on the perils of letting loose at the end of the exams.
Caution and prudence are the economic watchwords of the moment. Yet neither word is a favourite in the lexicon of the Irish election agent or his or her eager candidate. Local and European elections are in train and a national election doesn’t seem that far down the track any more.
The troika may intimate, Central Bank may urge, the ESRI may beseech, but even after all we’ve been through these past few years, most of us suspect how this political game is going to play out.