There was nothing new in Central Bank governor Philip Lane's latest pre-budget missive to Government. We should be targeting a budget surplus rather than running deficits – he's said that on several occasions and it's a pretty standard counsel of economic prudence: in other words, save when times are good.
The current "windfall" in corporation tax may be temporary – even the Government acknowledges this, and Minister for Finance Paschal Donohoe plans to reroute much of the current largesse into the rainy day fund.
And the governor’s support for banks selling off non-performing loans, despite the public anxiety around vulture funds, has been longstanding.
But for a man so wedded to reticence, his language was sharper than usual, perhaps reflecting a growing impatience with Government’s budgetary policy. It had originally planned to run a budget surplus in 2018 but this has now been pushed back to 2020. But the Government is beholden to other pressures, not least the clamour to address infrastructural bottlenecks in health and housing, and tightening your belt when the economy is booming is a difficult sell politically.
Go Scandinavian
Speaking on Wednesday at the Central Bank's annual economic roundtable event, Lane was at pains to point out that it wasn't his job to prescribe where tax revenue should be spent and that the State could go Scandinavian for all he cared, meaning if politically popular the Government could ramp up public investment on services and infrastructure similar to levels seen in Norway, Sweden and Denmark, provided it stayed within the given financial parameters.
He also noted that governments in Scandinavia typically ran budget surpluses in the good times so as to ensure spending on vital services would not be restricted when the economic cycle turned. He even mooted the idea of having another SSIA savings scheme so the public could get in on the act of saving when times are good. However, he cautioned that any new scheme must be counter-cyclical, noting that the last one matured smack-bang in the middle of the boom, flooding an already overheating economy with money at exactly the wrong time.
