‘State risks repeating pre-crash mistakes’

The head of the Nevin Economic Research Institute has said Ireland must decide the type of country it wants to be by 2030, warning there are signs currently that the economy may be going down the same path which dragged it into the recent recession.

Tom Healy, NERI director, said the sense of gloom, uncertainty and shock that pervaded the economic landscape in 2009-2011 has abated considerably with fewer households in negative equity, falling dole queues, rising spending in the shops and the long farewell to the troika.

However, he also raised concerns about the foundations upon which the current recovery is being based.

Mr Healy said there is currently an over-reliance on foreign direct investment. He said the danger of that is that it exposes the country in the future as it is unlikely that we can compete on that factor alone.

“Unlike a number of other European countries, we have not developed the critical scale of innovative activity to put us on the global export map,” he said. “The biggest long-term issue is to create more enterprise. The State has a role in facilitating that.”

He also pointed out that “some large nasty weather fronts are gathering in parts of Europe and elsewhere with uncertain impacts on Irish investment and trade”.

The NERI director said the challenge is to figure out what sort of Ireland we think is possible in 2030.

“2030 because it takes one generation (and probably two) and five electoral cycles to bring about a fundamental shift in political and social culture,” he said.

Mr Healy said at present there is a lack of coherent vision and strategy for the long-term — many people thinking of ‘long-term’ as the next five to seven years.

He said there can be the shift by 2030 “providing the lessons are learned and there is a fundamental shift in the way we do business”. But he added that talk in recent months of tax cuts, combined with rising house prices, “sounds too familiar”.

Mr Healy said when commentators start asking, “not ‘Should we have tax cuts?’ but ‘is it too early for tax cuts now?’ “you can guess that one of two things is about to happen based on experience of the last four decades: A general election is imminent; and/or nothing has been learned from the past four decades”.

He said in the years leading up to and during the Celtic Tiger it was common for Governments to adjust the top rate of income tax or tax bands, but he said, in the long-run, that was not sustainable as taxes were required from the top down to finance public services.

“Courageous, creative and realistic thinking is needed about framing a vision for Irish society,” he wrote in his regular blog on www.nerinstitute.net.

“Political economy has a vital role to play in helping shape such a vision about where we need to go.”