Planning for after the bailout

 

Long-term planning has been largely absent in political life. Now, as the Government prepares to exit the rigidities of the troika bailout, Minister for Finance Michael Noonan and Minister for Public Expenditure and Reform Brendan Howlin are preparing a seven-year economic programme that will set down specific targets for spending cuts and investment in job creation. The plan will extend beyond the date of the next general election and in the words of Mr Noonan, will be designed to ensure there will be no loss of reforming impetus.

To an extent, the Ministers are making a virtue out of necessity. Exiting the troika programme cannot signal a return to the free-for-all days of boom and bust. Tighter EU disciplinary and oversight measures are now in place and Ireland is committed to reducing its annual deficit to below 3 per cent of GDP by 2015. It also hopes to benefit from the European Stability Mechanism while attracting international funds at affordable rates. This will require a continuation of spending restraint and higher growth rates.

For those who thought the financial crisis was over, this is an uncomfortable message. The best the Government can offer at this stage is a degree of flexibility on tax and spending and the promise of job creation. Bringing the deficit below 3 per cent of GDP is an EU requirement and Mr Howlin recently wrote to all departments seeking savings of between 3 and 5 per cent for the next two years. Public sector workers may avoid further pain if the terms of the Haddington Road document are accepted, but services will contract.

Building hope and confidence into that difficult scenario is what the seven-year plan is all about. The Government has already signalled its intention to spend €2.25 billion on a variety of projects in Health, Education, Justice and Transport from next year. It will draw funding from the European Investment Bank, the National Pension Reserve Fund, domestic banks, pension funds and the sale of State assets.

The objective is to create 13,000 jobs in the period to 2018. Investment of that nature is important. But State projects, alone, will not provide the stimulus necessary to tackle high unemployment and crippling emigration. Small businesses are the most effective providers of new jobs and they continue to be starved of funds by banks.

Reducing the €12 billion gap between Government income and expenditure over two years will be difficult. The pain would be greatly reduced, however, if economic growth returns to projected levels. That shortfall has already forced a renegotiation of the Croke Park deal and cuts in spending. A credible plan involving fiscal discipline and jobs would stimulate investment and public confidence.