Ireland is going to have to rebuild its economy, for the second time in a decade

Emergency measures to counter impact of coronavirus not sustainable in the long term

Minister for Finance, Public Expenditure and Reform Paschal Donohoe launches Ireland’s Stability Programme Update 2020 at Government Buildings on Tuesday.  Photograph: Leon Farrell/Photocall Ireland

Minister for Finance, Public Expenditure and Reform Paschal Donohoe launches Ireland’s Stability Programme Update 2020 at Government Buildings on Tuesday. Photograph: Leon Farrell/Photocall Ireland

 

The document published by the Government on Tuesday demonstrates the scale of the challenge that will face the next government whenever it takes office.

It also shows just how unsustainable the emergency measures taken in recent weeks are – a budget deficit of €23 billion this year and perhaps another €14 billion next year. Ireland can currently borrow on the bond markets with some facility. But the markets are, as we know, unsentimental and unforgiving.

They make judgments about countries based on many things, but chief among them is its government’s ability to run stable public finances over the medium term.

Running a deficit in a recession is not just unavoidable, it is wise. But no country can run big deficits indefinitely. The next government will have to bring the public finances into something approaching balance within a few years. That is an obligation under European law but it is also a fiscal necessity. And that means it is a political reality. That will obtain no matter who is in government.

The idea – blithely tossed around the place – that we can just keep borrowing is not one that sustains close examination.

Rebuilding

So, for the second time in a decade, Ireland faces the task of rebuilding a damaged economy and repairing ravaged public finances.

Minister for Finance Paschal Donohoe and his chief economist, John McCarthy, were at pains to point out on Tuesday that this recession is different from the 2008-11 economic crash, and that Ireland faces the challenge with its public finances in good health (a fact for which Donohoe received little enough credit in the recent election) and its economy in good shape. We have, said McCarthy, “quite a bit of breathing space”.

But while all that helps, the task of restoring the public finances to a position where the country’s expenditures are matched broadly with its revenues remains one fraught with political difficulty.

The euphemism that politicians are currently using is “difficult decisions”. They will be difficult because they will involve curtailing social spending in areas where lots of people see a pressing need for it, and maximising revenues from people and businesses trying to rebuild their own finances.

Whoever enters government will be dealing with uncomfortable trade-offs pretty much from the get-go

That task will fall to the next government, as yet unformed and uncertain. The leaders of Fianna Fáil and Fine Gael – likely to form the basis of the next government – have unwisely pledged a “no austerity” administration.

On Tuesday, Donohoe pointed out that the 2011-16 government had not raised income tax or the universal social charge. He could have added that “core welfare rates” (as Labour used to call them) went untouched as well. But that period still felt pretty much like austerity to most people.

Social cohesion

Promoting an economic recovery while maintaining social cohesion and at the same time repairing the public finances (not least so that the markets keep lending) will be the three-headed challenge for the next government. The idea that there are simple ways of doing this in a way that everyone will accept as “fair” is not one that will survive first contact with the practical reality of government.

Deciding where to spend money and where to save it is not the only task of political leadership, of course, but it is an unavoidable one. Whoever enters government will be dealing with uncomfortable trade-offs pretty much from the get-go. So far these have not pitted economic interests against public health requirements; but they will soon enough. Decimated public finances cost lives too, in all sorts of ways.

Many politicians – some of them in Fine Gael and some of them in Sinn Féin – believe that another general election is necessary to take account of the drastically changed circumstances that now apply in this country. That’s understandable: every promise that was made by the parties in the general election campaign assumed a benign economic environment that is no more.

But a general election wouldn’t change these numbers. There is no avoiding this now.

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