Keep budget goodies on the shelf until 2016
There is little political advantage to be gained in having an economic boom in the early part of the electoral cycle if it might have dissipated by the time the election comes round.
The Government was elected in early 2011 and effectively continued to pursue the broad policy put in place by the late Brian Lenihan. For the first two-and-a-half years economic conditions stayed very difficult. However, once the Government entered into the second half of the electoral cycle, the economic situation started to improve markedly and has built up quite a head of steam in the first eight months of 2014.
Even the most negative and cynical out there will find it hard to argue with the compelling evidence of economic recovery.
It is a real positive for the Government that, as it gets down to the serious business of framing Budget 2015, it does so against an economic and fiscal background that is getting steadily better. The exchequer returns for the first eight months of the year show tax revenues are running 8.7% — or just over €2bn — ahead of the same period last year. But, more importantly, total revenues are running €971m higher than the Department of Finance had budgeted for.
This is primarily reflecting a stronger labour market and a marked recovery in consumer spending, particularly on new cars, which represent a tax cash cow for the exchequer.
The labour market data are also developing in a very positive manner. We know that, in the year to June, total employment in the economy was 31,600 higher than a year earlier.
The strong jump in 2013 reflected pent-up demand for labour stimulated by the improvement in economic activity, though it was probably inevitable employment creation would slow down once the catch-up had occurred.
The important point is that the economy is still creating jobs, and, as long as this continues, consumer demand will gradually gain momentum.
Politically and economically, this is incredibly important.
On the other side of the labour market equation, the news is similarly good.
In August, the number of people signing on the live register fell by a further 2,900 to reach 380,100 on a seasonally adjusted basis. Over the past year, it has declined by 36,955 and by 58,000 over the past two years. While the live register is not designed to measure unemployment, as it includes part-timers who work up to three days a week, and seasonal and casual workers who are entitled to Jobseeker’s Allowance and Jobseeker’s Benefit, it is still a good barometer for what is going on in the labour market.
Thus, the live register data are sending out a strong signal, and an unemployment rate of 11.2% is a far cry from the rate of 15.1% in February 2012. It will be amazing if, or more precisely when, the unemployment rate moves back into single digits, an event that is not too far away.
While economic recovery is no guarantee of electoral success, particularly given the very fickle nature of the electorate as demonstrated in the local and European elections in May, it is much preferable to be coming into an election with strong economic tailwinds, rather than strong headwinds.
The Government will obviously worry about external developments, but all of the domestic indicators are moving in the right direction.
From an economic and political perspective, a politically-motivated budget in October is not what is called for. Budgetary goodies should be kept on the shelf until Budget 2016, which will likely be the last budget before the election.
