In advance of a general election no government likes to have its policy options pre-empted, not least by advice from credible outside agencies such as the International Monetary Fund (IMF). As part of its regular review of the Irish economy the IMF, in its latest report, has warned that limited scope exists for reversing public sector pay cuts. And it has again advised of the need to re-examine the universal entitlement to some welfare payments, such as child benefit.
It is not a message which will get much traction in the current political and economic climate. Figures this week are likely to show the public finances have made a solid start to 2015, the economy is growing and interest rates are at an historic low. The Government raised short-term borrowings last week at an interest rate of zero per cent. The recovery is, it appears, gradually taking hold, even if risks remain.
Against this backdrop, the Government has, in recent months, chosen to ignore much of the external economic advice it has received. In framing the last budget, it dismissed the views of the Central Bank, the Irish Fiscal Advisory Council and the European Commission, among others. It opted for a mild stimulus rather than further fiscal adjustment as the others had recommended.
Since the budget, a number of reports from international agencies have also been given little attention. As well as the IMF, the EU Commission and the OECD, while generally positive, have also warned about the need for caution, given the risks we are still facing. The political mood here is that, with the Troika gone, we can run our own show now.
However, the international agencies are hardly overstepping the mark. For example, in its recent report the IMF is merely stating the obvious when it points out how major savings in the public sector wage bill have helped to achieve fiscal consolidation, and how fully implementing the Public Service Reform Plan must remain a key concern. It has also emphasised how, given fiscal constraints, the Government has limited scope to reverse these pay cuts.
Its call for means-testing or taxation of some universal benefits has revived one of the least discussed – but most controversial – issues in Irish politics. But that does not mean it is not a legitimate question to ask.
The Government is, understandably, trying to engender some confidence in the economic recovery. However as Taoiseach Enda Kenny himself has said, this recovery is still fragile. Part of managing it also involves a realistic assessment of the options facing us and the limited enough room there will be to increase spending and cut taxes unless new revenues are found elsewhere. We are past the period of crisis for our public finances. What is needed now is strategic thinking and a decision about where priorities should lie.