The age of Irish austerity will not be short-lived
Over this 11-year period – half of which was recessionary – the size of the State sector will have grown by 60 per cent. Among the countries in the euro zone during that time, only Luxembourg is expected to record a larger increase over the period, according to European Commission data and projections. The expansion in the size of the State also far exceeds that in Europe’s paymaster and politically most powerful state, Germany, where spending is projected to rise by just 28 per cent in the 11 years to 2013.
Had the Coalition wanted to be radical when it came to power it could have sought to bring total spending back to, say, €55 billion (the amount of revenue it expects to bring in this year). That was the level of spending in 2005. Selling mid-decade spending levels to the electorate would certainly not have been easy and cuts of that magnitude would have meant confronting interest groups, including the most powerful ones, but it could have been done. The narrative would have been strengthened by the promise of an end to austerity sooner than will happen under the existing plan.
Given the extreme fragility in Europe, a big negative shock may ultimately force the Coalition to go down the radical route, but it has clearly eschewed this (admittedly risky) option.
Instead, it is locked into two more years of austerity budgets – with cuts and tax increases of €3.1 billion in a year’s time and €2 billion in 2015. The hope is that from 2016 economic growth will do the heavy lifting of adjustment, gradually eroding the budget deficit and the mountain of public debt.
But this hope is vague, as illustrated by the absence of any Government projections for the economy or the budgetary position beyond 2015. That things may not turn out as planned was highlighted on Wednesday by the British government’s changed budgetary projections.
While Noonan and Brendan Howlin were spelling out the details of Budget 2013 in the Dáil, their counterpart in London was telling the UK public their austerity would go on until 2017.
If the hole the British are in is not nearly as deep as the one we are in, but they are preparing for more years of retrenchment, the chances of fiscally neutral budgets in 2016 are slim.
The age of austerity will not be fleeting.