Time has come to end budgetary uncertainty
The growth in exports is largely being driven by productivity improvements rather than employment growth, and given the strong contribution by the foreign-owned sector; the tax revenues flowing from the growth are not as strong as would be the case if domestic demand were driving growth.
It is of course vitally important to rebuild an Irish export model based around quality and competitiveness.
Unfortunately, the growth in the export sector is not yet of sufficient magnitude to lift domestic demand, which is being hampered by some serious structural difficulties. Business investment spending is being held back by a lack of bank credit, rather than a lack of confidence in the future.
Based on my anecdotal experience with the SME sector in recent months, there is still quite a high level of confidence and a desire to get on with doing what entrepreneurs and business owners are best at doing.
However, the dysfunctional banking system is not facilitating this process and the Irish economy is being subjected to a classic credit squeeze. The consumer side is also not providing any solace. Consumer confidence remains very fragile and consumer spending is still showing no sign of any meaningful recovery.
The factors undermining the consumer are all very obvious — the labour market is still very uncertain, wages are under pressure, huge personal wealth has been destroyed, negative equity and mortgage difficulties are destroying many, and most of all at this stage, people are still very fearful of what the budget in December and in subsequent Decembers might bring.
For me it is very disappointing that a Government which came in with such a strong mandate did not hit the ground running and introduce a stringent budget at the beginning of the summer and lay out the fiscal parameters for the medium-term.
As bad as that might have been, at least it would have killed off all of the confidence-sapping speculation dominating budgetary discourse ahead of the December 6 budget. If people are given certainty about future pain, at least it would allow them plan with certainty.
The Department of Finance and Government will probably argue this was not possible ahead of the recommendations from the comprehensive spending review.
However, I am not sure why such a comprehensive spending review was necessary in the first place.
After all, didn’t Colm McCarthy provide strong options in his report in 2009 and the Local Government Efficiency Review Group reported on local government reform in 2010?
We can keep producing reports forever, but at some stage we actually should start to implement the recommendations.
Somewhat belatedly the Finance Minister on Tuesday laid out the fiscal timetable. In early November, the medium-term budget plan detailing the proposed tax and spending policies for the next four years will be published.
On November 10, the capital spending plan will be laid out; a week later the Government will detail the various public sector reforms and initiatives to improve value for money; on December 1 the spending estimates for each government department in 2012 will be published; the following day the White Paper on Receipts and Expenditure will be published; and on December 6 the actual tax and expenditure measures for 2012 will be produced in the annual budget.
It all sounds very convoluted and confusing, but at the end of the process we will have a pretty clear idea as to what faces us over the next four years. It will not be pretty, but at least the uncertainty will be removed.
