Brendan Howlin: Economists’ warnings about economy are overstated

Past failures in predicting crash are colouring view of the future

Brendan Howlin: ‘Michael Noonan and I share two core goals and we intend to make good on both. We were elected to fix the economy and the public finances. We are well on the way to doing so.’   Photograph: Aidan Crawley

Brendan Howlin: ‘Michael Noonan and I share two core goals and we intend to make good on both. We were elected to fix the economy and the public finances. We are well on the way to doing so.’ Photograph: Aidan Crawley

 

One of the less discussed impacts of the recession may well be its long term effect on the economics profession. As John FitzGerald indicated when he retired from the ESRI, it remains a regret that the profession wasn’t sufficiently attuned to the dangers facing the Irish economy in the run-up to the crash.

I wonder whether this failing is now contributing to the profession’s view of the future.

In recent weeks, we have seen a number of bodies and commentators warn about potential threats to the economy and criticising the Government’s spring economic statement in that regard.

These concerns are, in my view, overstated and frankly do not accord with the Government’s track record in bringing the Irish economy, and the public finances in particular, back from the brink of disaster.

Independent forecasters are important. That is why the Government set up the Fiscal Advisory Council. The Central Bank plays a similar role in its quarterly bulletins.

The reality though is that the Department of Finance’s economic forecasting has been good in recent years and its budgetary forecasting appropriately conservative.

Despite concerns expressed by economic commentators of all hues, the Government has exceeded its targets every year since taking office. Already it is clear that in 2015 we will do so again, bringing the deficit well under 3 per cent and exiting the European Union’s excessive deficit procedure as planned.

Michael Noonan and I share two core goals and we intend to make good on both.

We were elected to fix the economy and the public finances. We are well on the way to doing so.

Significant contribution

Politically, I don’t believe that would have been possible without the two parties acting in concert. As a Government all decisions have been taken together, good and bad. Labour’s contribution has been significant.

Our recovery has been remarkable for the fact that industrial peace and social cohesion have been maintained. Industrial peace, in particular, in both private and public sectors has been a critical signal to investors that Ireland remained open for business and was serious about recovery.

Our second shared goal is to ensure that the Irish economy is not put at risk again. Having gone through the difficult task of getting things back on track, we have no intention of allowing the recovery to be derailed.

The scale of our progress is remarkable. In 2014 we returned the economy to primary surplus. In 2016 we will meet the “golden rule” – we will only be borrowing for capital purposes, because we will be able to meet day to day spending from the income we raise.

In the spring economic statement we commit to adherence to Europe’s fiscal rules.

The only question that has arisen here is the pace at which we move toward budget balance in structural terms, after allowing for the impact of the ups and downs of the business cycle. However, in the European Commission’s assessment of 2016, Ireland meets that target comfortably.

Ambitious targets

Some economists seem to believe we should cut the deficit faster than our already ambitious targets and do little to raise living standards.

This is to ignore that our prospects of sustaining the recovery and improving living standards depend crucially on our capacity to sustain growth in the economy. We cannot focus exclusively on running down debt.

The additional taxation imposed by Fianna Fáil as a result of the crisis is an impediment to employment creation and needs to be tackled over time.

Additional investment in the productive capacity of the country is economically and socially beneficial and was inevitably stripped back during the recession.

We know too that sustainable wage growth, consistent with retaining competitiveness, is an inherent part of a healthy functioning economy.

There has been some comment about the fact that the spring statement was produced on a “no policy change” basis after 2016. In fact it was done so precisely to facilitate a debate about how we should collectively proceed. It will be for those facing the electorate to set out how their promises accord with the framework set out in the statement.

The central aim of the Labour Party will be to sustain economic recovery in the long term. That means getting the balance right between society’s legitimate expectations and our long term capacity to support them.

It is a different task from the one we achieved in the early years of this Government, but one we are as steadfastly committed to. Brendan Howlin is Minister for Public Expenditure and Reform

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