Too early to relax on budget
Buoyant Exchequer returns, confirming positive developments within the manufacturing, services and construction sectors, will have come as a relief to Government and to those Fine Gael and Labour Party backbenchers whose seats are under threat. Such good news should not, however, disguise the grim reality that the State remains broke and is spending much more than it raises in taxes. Demands for a give-away budget and generous tax cuts are, therefore, premature and reflect old-style, profligate politics. There should be some room, however, to help those hardest hit by recession.
Pressure from opposition parties to respond to public dissatisfaction is likely to intensify in the aftermath of their successes in the recent elections. A panic response by Government, leading to the abandonment of fiscal discipline, would jeopardise much of what has been achieved over the past five painful years. Change has, however, been in the air regarding the nature of the budgetary target. The European Commission is urging maximum retrenchment, requiring savings of a further €2 billion next year. Government ministers, mindful of public disillusionment, a fragile economy and improving Exchequer returns, have referred instead to a deficit of less than three per cent of GDP. Such an approach would allow for a largely neutral budget, going on current economic projections.
It has become obvious in recent years that one size does not fit all within a badly designed EU financial system. Reforms are being undertaken. Commitments have been made. But delivery on debt relief and other issues has been painfully slow. Germany has called the shots and austerity has prevailed. Undertakings given by Mario Dragi at the European Central Bank served to stabilise the euro , but yesterday’s measures to stimulate investment and growth are likely to fall short. Determined intervention will be required from EU leaders and the ECB if public confidence in the viability and benefits of the European project is to be restored.
In view of these difficulties, the level of commitment that exists at political, trade union and business level to persevere in the correction of Ireland’s public finances is reassuring. Having exited the EU/IMF bailout, no appetite exists to revisit that dark place. Candidates for the Labour Party leadership, Joan Burton and Alex White, have confirmed their support for the Government’s deficit target, even as they disagree on other matters.
Following a desultory start to the year, tax returns have improved and are better than expected across all categories. Job creation has shrunk welfare spending while the cost of servicing the national debt has declined. When those figures are taken in conjunction with employment and new order surveys from the manufacturing sector, there is reason to believe a strong recovery is underway. That prospect could be squandered, however, if action is not coordinated at EU level to stimulate growth.