After celebrating electoral success and forming a government, Fianna Fáil and its coalition partners might well consider reducing, if not cancelling, their traditional 100-day honeymoon as they adjust to their new roles and departmental responsibilities. It is now time for an economic reality check.
Over the past decade Ireland's rapid rate of economic growth has enabled it to catch up with the rest of Europe. But future growth will probably be more modest, and conditions may well prove more challenging. A 4 to 5 per cent average growth rate over the next five years, which the Government is forecasting, will be harder to achieve than was the case over the last five.
For much of the past decade Bertie Ahern and his two finance ministers have managed the economy with obvious success, to judge by the key economic indicators. That headline success has served only to mask some significant failures, which have become more apparent. The economic outperformance was greatly helped by competitive personal and corporate tax rates, which they introduced; by the benefits of social partnership, which they facilitated; and by a remarkable run of good luck, which they owed to a benign economic environment at home and abroad.
The days of economic plenty, however, are now over. Personal borrowers in many households are left nursing a painful hangover of debt. The property market has stalled as interest rates have doubled in the past 18 months. And rates are set to move higher before the end of the year.
Borrowers, who benefited from record low interest rates, have helped to fuel a property boom, which has contributed to an imbalanced economy. The exchequer has become over-reliant on tax revenue from the building sector. And the Government is too dependent on jobs from construction to keep employment high, and on domestic consumption and investment to serve as the drivers of economic growth. The national debt, once the highest in Europe, is now among the lowest, while private (household) debt is among the highest: a remarkable transformation.
Ireland's share of world trade has diminished and foreign direct investment has declined in recent years, though this week's figures showed some recovery. The current account balance of payments has moved from surplus to deficit, as we import more goods and services than we export, and consume more than we produce. Ireland's inflation rate is out of line with our euro zone trading partners. But the biggest, and most immediate, challenge facing the Government, the one it has yet to acknowledge and confront, is competitiveness. Financial products carry a wealth warning to indicate that past investment performance is no guide to future returns. The Government also knows that past economic performance cannot be easily replicated. It must first confront the challenge that it has acknowledged, but shirked, for the past five years. That is competitiveness.