Political shenanigans, not careful economics, drive public spending

Taoiseach Leo Varadkar is effectively leading his third attempt to start a successful electoral strategy. Picture: Julien Behal.

The hard-hitting report from the Irish Fiscal Advisory Council was written as economics but should be read as morality: “The pace of annual spending growth has risen from 4.5% in 2015 to 6.7% in 2018.”

Lest the point be misunderstood, that’s us, folks.

Extra billions for the National Children’s Hospital and the National Broadband Plan are not included, yet. Public sector pay and pensions, at €19.5bn in 2018, is now above its previous peak of €18.7bn in 2008.

That’s what so-called equal pay looks like.It is the key discretionary driver of unsustainable profligacy.

When the economic history of our next, and likely nearly arrived, downturn is written, gardaí, nurses, and teachers will have starring roles.

The pantomime cast of bankers will likely be missing.

Not just in hindsight, but clearly at the time, caving in to a threat to mutiny by gardaí, which is what refusing lawful orders is, was the fork in the road.

The lesson of the crash was abandoned, and enjoyment of its causes resumed with relish.

There is nothing worse than the ingratitude of people given what they asked for. This is the perpetual reward of Irish politicians.

There is no end to the pleasing, but when inevitable consequences come, it is pandering politicians, not the grasping people, who are blamed.

The lesson, of course, is that it’s a mugs’ game. The most you might get out of it is another election. But that is the crux of the matter.

The economic cycle is hard-wired to the electoral one. Economic events from subprime mortgages to the euro crisis and Brexit is economic weather over which we have little control.

What changes them from bad to worse is the force of our demands, pushed through the sluice gates of our politics. Because responsibility is always shifted and never taken, nothing changes.

The reason we repeat our particularly Irish mistakes is that while we promise to change, we refuse to move from the place where we habituated our bad habits.

The problem for the cause of reform after 2011 is that it was regarded as a noun, not a verb. The brief moment of perhaps 18 months after the 2011 election, when a democratic revolution might have been possible, was wasted.

Enda Kenny and Eamon Gilmore, like the Bourbons re-entering Paris in 1815, the city they remembered from their youth before the revolution, forgot nothing and learnt nothing.

Their project was restoration, not reform. They succeeded for a time of course, but the underlying drivers of the original catastrophe were left intact.

Irish politics is uniquely driven by the multi-seat, proportional representation system. The votes in 2011 and 1977 were the two electoral landslides in my lifetime.

In 2011, the victors misread the victory. They squandered the spoils. Decent people, they thought they could rebuild, but they lacked the imagination to reinvent.

Eight years later, everything in yesterday’s report is familiar. In boom years, this government is at 2005.

For a glimpse of Hell, see Box C on page 43.

In a hard Brexit, growth rates would sink well south of 3%. National debt, instead of being a high but manageable 86%of gross national income, would by 2023 be 111%, assuming no policy changes. That’s the issue.

Rising deficits, sustained on a sinking national income, is unsustainable. Change, which is aeuphemism for cuts, must come.

Depending on how you prefer your pain administered, choose between a front-loaded adjustment of almost €4bn in 2020 or a cumulative adjustment of €5bn phased evenly between 2020–2022.

That’s the scale of the consequence of a hard Brexit, and that is only an appetiser.

The tone of the report is markedly harsher than its predecessors because the time left before the events warned of is tightening.

As the consequences of Brexit accumulate, another significant threat looms into view.

The OECD plan, to align the corporate tax base internationally to some degree with market share, and to ensure a minimum rate of tax if agreed, and I believe something will, looms large about five years thence when eventually implemented.

The Irish model of foreign direct investment is peaking at exactly the wrong moment.

The Government can stop none of these bad things happening. What they should have done is save some of the boom revenues, to mitigate the worst of what is about to happen.

The rainy day is coming, but our fund consists of a plan for future action.

The money that could have been saved funded an election in 2016. More significantly, especially on health spending, it funded a planned election since that, in fact, has never been called.

In a downturn, the first to go overboard, are capital projects. That stimulus loss is exactly the wrong recipe. But needs must.

Remember, after the National Children’s Hospital and the National Broadband Plan, there are about €2bn in unfunded capital projects in Ireland 2040. That tome will sit beside the last national development plan before the bust as great Irish fiction.

In every government, there is tension. In a government seeking a third term eight years after the first full flush of romance, that tension is acute. It is between the Department of Finance and the Department of Elections, which is what the Taoiseach’s office effectively is.

Aligning the greater good, with the short term imperative is difficult at best, in any electoral system. In ours as proved time and again, the pressure which builds is almost unstoppable.

Because a Taoiseach who hasn’t fought a single election yet as leader of Fine Gael is effectively leading his third attempt to start a successful electoral strategy, the raiding of coffers has become repeated.

Every electoral launch has been frustrated by events. Tactical decisions, on spending especially, have become strategic mistakes.

On top of the consequence of the debacle of the National Children’s Hospital, across the board, the Government’s economic reputation is slackening.

Now a series of economic setbacks loom. The rainy day fund is empty. That small salve would have been some mitigation. And we haven’t mentioned climate change. Saving the earth, won’t be free.

Strangely, the root causes of unsustainable demands for public spending won’t be examined either.

Politicians will carry the can first for not spending enough, and then for the cuts required to pay back for the profligacy.

Fine Gael is the new Fianna Fáil, and Fianna Fáil has reverted to type, at least as far as buttering the buttocks of public servants is concerned.

The left wants more of everything but less of nothing.

Leo Varadkar’s tax cuts are now pie in the sky.

The failure of all,especially all in opposition, to broaden the tax base will tell against us, 10 years after we were told what to do.

You could easily get lost in the economics. The shenanigans are easier to understand.

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