Jim Stewart: The publication of the various party manifestos has not been accompanied by detailed scrutiny of many of the policies proposed. There are exceptions (see, for example,the analysis of Parties' proposals for pension reform by Gerard Hughes and Jim Stewart here). One reason for this may be that without expected electoral success, a party manifesto is irrelevant. It may also be because control over the budgetary process and much of economic policy is prescribed by the EU/IMF Memorandum of Economic and Financial Policies which is subject to extensive monitoring (weekly, monthly and quarterly reports). Nevertheless, in some areas there is discretion.
All parties propose renegotiating the terms of the EU/IMF agreement. Electoral change in Germany may make this more likely as the German Governments hard line stance is to some degree determined by electoral strategy (see Quentin Peel, Financial Times, February 21, 2011). As regional elections take place in Germany with defeats for the ruling government, electoral strategy may also lead to a change in economic strategy in relation to EU policies towards peripheral countries, and the role of the European Financial Stability Facility.
The Fine Gael manifesto is of particular interest, as Fine Gael is likely to form the largest party in the next Dail and may even have an outright majority.
Fine Gael Policy Areas/Statements that Require Analysis
The decision to sell state assets (Less Waste, Lower Taxes, Stronger Growth, p. 4) deserves considerable analysis. The assets to be privatised are listed as Bord Gais, ESB Power Generation, ESB Customer Supply Companies, and RTE Transmission Network (Working for Our Future p. 21). Fine Gael criticise (and rightly) the forced fire sale of bank assets (Credit Where Credit is Due, p. 6), yet any sale of Sate owned assets would amount to just that. The economic justification for privatising assets is poorly developed. In addition, the EU/IMF Memorandum of Understanding states “under the period of this financial assistance programme, any additional unplanned revenues must be allocated to debt reduction”. This means selling State assets will be used for debt reduction as in the case of Greece (see Guardian Newspaper 18/11/2019 ‘Greek PM denies plans to sell off national treasures’);
The statement that our effective corporate tax rate is actually higher than that of most EU countries (p. 7) is not supported by the most reliable data available, that is US Bureau of Economic Analysis data;
It is proposed to replace the HSE by new systems by 2016 (Less Waste, Lower Taxes, Stronger Growth, p. 13). In another document it is stated “that the big top down bureaucracies like FAS and the HSE will have been replaced by new systems” (Less Waste Lower taxes Stronger Growth, p. 13). The Manifesto (p. 47) states that the ‘dysfunctional HSE will be dismantled’. Is the fixation with structures really the solution? Are we facing into another five years of chaos while the health system is restructured at the expense of services? It is not clear what institutional structures would replace the HSE, how the new social insurance model will work and how budgets would be allocated.
The Department of Finance is criticised because “it failed to deliver good value for money for taxpayers through public service modernisation and because of the excessive breath of its responsibilities and its culture of centralised control and distrust of the front line” p. 20, See also Reinventing Government, p. 26)).
The Department of Finance can be criticised on many points, but the main failure in economic policy was the destructive policies pursued by McCreevy (decentralisation, deregulation, etc.). Avoiding the pursuit of catastrophic policies in future requires change at many levels, including the near ‘monopoly of the consensus’ in discussions/writing about economic policy, and the consequent silencing of alternative voices.
The formation of an ‘independent’, unelected, fiscal council to which the Minister for Finance will be obliged to either “comply or explain (p. 20) poses many questions. Are we not voting with the intention that those candidates with a majority will have a democratic mandate to form the next Government and be responsible for fiscal policy? Who will be appointed to this independent Council? Many ‘experts’ are not independent of vested interests and especially not independent of an outdated and failed ideology (see blog by Paul Sweeney, A Code of Ethics for Economists). How will such a body avoid being captured by the cosy consensus?
There are welcome proposals, such as the proposed introduction of a loan guarantee scheme. (Working for Our Future p. 265) - but why is it being introduced as a ‘temporary’ measure?
The proposal to use existing banks to administer such this scheme will largely neutralise the scheme and end up subsidising banks as existing loans will be displaced by loans issued under the guarantee scheme.
Note
(1) For example, there is an analysis of Fine Gael and other Parties proposals for pension reform by Gerard Hughes and Jim Stewart at http://www.tcd.ie/business/assets/pdfs/Pensions-Reform_&__Party_Manifestos%5B1%5D.pdf
Showing posts with label GE2011. Show all posts
Showing posts with label GE2011. Show all posts
Tuesday, 22 February 2011
Monday, 31 January 2011
Off to a dismal start
Michael Taft: Even before the election has been officially announced, the debate has gotten off to a fairly dismal start. Yesterday, Labour’s Eamon Gilmore made the simple proposition that the target date for Maastricht compliance should be postponed until 2016. The reaction from Fianna Fail and Fine Gael has been extreme. You’d think Labour was proposing the end of capitalism as we know it.
Let’s get a grip on the real world. The IMF released an analysis of the Government’s four-year plan last December and assessed its potential to repair public finances. They found that by 2014, the deficit would be -5.1 percent of GDP (the Government is aiming for -2.8 percent). By 2015, it won’t be a whole lot better. The rate of deficit reduction slows to -4.8 percent. If this rate holds in subsequent years, Maastricht compliance won’t be achieved even by the end of the decade.
This shouldn’t be too surprising. The ESRI signalled that under a low-growth scenario, the deficit would still be below the Maastricht guideline by the end of decade.
So all Labour is acknowledging is what everyone knows (though only a few will say so publicly).
Why is this happening? Because the weight of the austerity programme is crushing growth. The IMF projects average annual growth up to 2014 to be 2.1 percent compared to the Government’s 2.8 percent. This lower growth projection will result in stubbornly high unemployment – estimated to be 11 percent in 2015 by the IMF. This burden, along with sluggish income growth, undermines the targets in the Government’s four-year plan.
John McHale refers to this in a thoughtful article in the Sunday Business Post. He posits three conditions to achieving debt stabilisation and regaining market confidence. First, a credible deficit-reduction plan; second, assurance that there are no additional losses on our banks’ balance sheets, and third, that nominal GDP growth ‘evolve broadly in line envisioned in recent IMF, ESRI and government forecasts’.
Regarding the first, we don’t have such a plan (austerity, as we have seen in the past two years, only deflates income and growth, but not debt); regarding the second – the markets continue to be wary and only the most stringent tests will assure them. Regarding the third point, however, we have a problem as the IMF, ESRI and government forecasts are telling us different things. Here are the latest nominal growth projections over the next two years:
Government: 6.8 percent
ESRI: 4.2 percent
IMF: 4.0 percent
EU: 4.0 percent
The IMF and EU project that nominal GDP growth will be 40 percent less than what the Government is hoping for. The ESRI’s projection isn’t a whole lot better.
But when it comes to GNP – the driver of most tax revenue and, therefore, the key to deficit reduction - the gap between the forecasts widen considerably.
Government: 5.6 percent
EU: 1.2 percent
ESRI: 0.8 percent
IMF: 0.5 percent
Now we can see why both the EU and IMF projections show the Government’s four-year plan will fail. Anaemic growth and high unemployment is a sure-fire recipe for high deficits and rising debt.
So when Labour calls for the Maastricht target deadline be postponed until 2016, all they are doing is taking a realistic account of the actually existing economy. Indeed, under current policy that deadline won’t be reached even by then.
If the argument centres on deadlines then it will be a dismal debate. Instead, what we need is a debate over a substantial and sustained investment drive (the only means to create sustainable growth that will translate into deficit-reduction) and alternatives to austerity measures.
That debate has yet to start in earnest.
Let’s get a grip on the real world. The IMF released an analysis of the Government’s four-year plan last December and assessed its potential to repair public finances. They found that by 2014, the deficit would be -5.1 percent of GDP (the Government is aiming for -2.8 percent). By 2015, it won’t be a whole lot better. The rate of deficit reduction slows to -4.8 percent. If this rate holds in subsequent years, Maastricht compliance won’t be achieved even by the end of the decade.
This shouldn’t be too surprising. The ESRI signalled that under a low-growth scenario, the deficit would still be below the Maastricht guideline by the end of decade.
So all Labour is acknowledging is what everyone knows (though only a few will say so publicly).
Why is this happening? Because the weight of the austerity programme is crushing growth. The IMF projects average annual growth up to 2014 to be 2.1 percent compared to the Government’s 2.8 percent. This lower growth projection will result in stubbornly high unemployment – estimated to be 11 percent in 2015 by the IMF. This burden, along with sluggish income growth, undermines the targets in the Government’s four-year plan.
John McHale refers to this in a thoughtful article in the Sunday Business Post. He posits three conditions to achieving debt stabilisation and regaining market confidence. First, a credible deficit-reduction plan; second, assurance that there are no additional losses on our banks’ balance sheets, and third, that nominal GDP growth ‘evolve broadly in line envisioned in recent IMF, ESRI and government forecasts’.
Regarding the first, we don’t have such a plan (austerity, as we have seen in the past two years, only deflates income and growth, but not debt); regarding the second – the markets continue to be wary and only the most stringent tests will assure them. Regarding the third point, however, we have a problem as the IMF, ESRI and government forecasts are telling us different things. Here are the latest nominal growth projections over the next two years:
Government: 6.8 percent
ESRI: 4.2 percent
IMF: 4.0 percent
EU: 4.0 percent
The IMF and EU project that nominal GDP growth will be 40 percent less than what the Government is hoping for. The ESRI’s projection isn’t a whole lot better.
But when it comes to GNP – the driver of most tax revenue and, therefore, the key to deficit reduction - the gap between the forecasts widen considerably.
Government: 5.6 percent
EU: 1.2 percent
ESRI: 0.8 percent
IMF: 0.5 percent
Now we can see why both the EU and IMF projections show the Government’s four-year plan will fail. Anaemic growth and high unemployment is a sure-fire recipe for high deficits and rising debt.
So when Labour calls for the Maastricht target deadline be postponed until 2016, all they are doing is taking a realistic account of the actually existing economy. Indeed, under current policy that deadline won’t be reached even by then.
If the argument centres on deadlines then it will be a dismal debate. Instead, what we need is a debate over a substantial and sustained investment drive (the only means to create sustainable growth that will translate into deficit-reduction) and alternatives to austerity measures.
That debate has yet to start in earnest.
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