Coalition must quit austerity: ex-IMF adviser

The IMF’s former expert on Ireland has warned the Government to abandon its austerity agenda as Coalition parties clashed over fresh cuts to child benefit in the upcoming budget.

The IMF’s ex-mission chief to Ireland, Ashoka Mody, waded into the pre-budget battle by insisting on a major change of direction.

The economic policy guru urged ministers to halt the Coalition’s cuts agenda to stoke growth and boost output. Prof Mody told ministers to think again about plans to take €3.1bn out of the economy via spending cuts and tax hikes in the October budget.

“If a €3.1bn reduction is planned, then that number should be considerably lowered. I would even ask the question: why can we not consider the possibility for the next three years, as an experiment, there be no further fiscal consolidation?” the economist told RTÉ.

Prof Mody urged the Coalition to change course to get the economy growing again by not imposing cuts.

“If that is done there is a possibility that Ireland moves from zero or negative growth to a 1% or a 1.5% growth and if that were to happen it would have so many dividends.

“It would give some hope that there is a resumption of growth, it would therefore be a big psychological boost and it would begin to demonstrate that the way to go out of debt is through growth.

“We are now in a potentially self-defeating policy which has austerity, low growth, and continuing, or even rising, debt levels,” Prof Mody added.

The Government greeted the stark intervention with a scathing response as Taoiseach Enda Kenny’s spokesperson dismissed Prof Mody’s comments, stating: “He’s one man with an opinion and he’s entitled to it. The Government is in talks with the troika and has targets to reach.”

Prof Mody said he believed the Government would be pursuing an austerity agenda even without pressure from the troika, adding that the €1bn from the Anglo promissory note deal must be pumped into a stimulus programme.

“That’s the very least that one should be thinking about... moving away from austerity at this stage is a sensible course of action and that if it is to be done, not just on the margins, by taking advantage of short-term windfalls by promissory notes and suchlike, but in a more well-conceived and well articulated way, such that it becomes a programme and not just a series of ad-hoc measures,” he said.

The austerity row erupted as Labour and Fine Gael fought a semi-public battle over whether child benefit would be cut again in October. Labour ministers have let it be known that the planned €440m cuts to welfare spending will not be politically acceptable.

However, leading Fine Gael figures insist cuts must go ahead to allow more leeway to stimulate investment in job creation initiatives.