Here’s the truth — don’t take the word of fiscal council as gospel

“THE real function of a fiscal council is to speak truth to power, to remind governments of harsh economic facts they may not want to hear, when they least want to hear them — at budget and election time. How will the Coalition Government respond in deed to the bold advice given by the newly established Irish Fiscal Advisory Council?”

They’re the opening couple of lines of the main editorial in the Irish Times last Friday. I suppose you could say they’re an expression of the views of respectable official Ireland. Governments are supposed to quake in their boots when editorials like that appear.

I hope they don’t. It’s absolute nonsense to say that a fiscal council speaks truth to power, or that it reminds governments of harsh facts they don’t want to hear. When a national newspaper leads off one of its main editorials with thinking like that, they’re actually expressing a view of the world which is so one-sided as to be virtually blind.

What is this Irish Fiscal Advisory Council? It’s a group of five independent economists (independent of the government, anyway), set up by Michael Noonan last July. When he was announcing the formation of the council, Michael Noonan said that its role would be to “provide an assessment of, and comment publicly on, whether the Government is meeting its own stated budgetary targets and objectives. It will also be charged with assessing the appropriateness and soundness of the Government’s fiscal stance and macroeconomic projections as well as an assessment of the extent of compliance with the Government’s fiscal rules.”

There’s a certain amount of gobbledegook in that, as there always is in anything put out by the Department of Finance (who will never win the plain English award). But one thing is pretty clear — it’s a pretty limited role.

Or, lest I be accused of being dismissive, it’s a pretty specific role. There are two giveways in the title of the group — one, it’s advisory, and two, it’s fiscal. Government sets targets, and as an added measure of accountability (no bad thing), an independent group is invited to comment on whether those targets are being met.

The council published its first report last week – this is the document the Irish Times describes as “speaking truth to power”. It’s 41 pages long, with eight or nine pages of introductory material and a couple of pages of references tagged on at the end. Mind you, it doesn’t take long to read, because it’s double-spaced throughout.

It’s pretty heavy going. For example, if you ever get to understand what the “statistical method of structural vector autoregression” is, you might let me know. And laymen like us might have to keep flicking back to the glossary page to keep up with all the acronyms. But by the time you’ve finished reading, the message is pretty clear.

The Government should cut. They should cut more than they propose to cut, not just next year, but in 2013, 2014 and 2015. It’s a pretty unenviable choice, says the council, but the only one. If the Government (and I suppose that means we the people) are going to achieve a position of credit worthiness, and get the ratio of our debt to our wealth down to manageable proportions, the only possible solution is to cut, cut, and cut again. Altogether, they want us to cut €4 billion more than has already been proposed out of the budget by 2015, starting in this year’s budget.

They keep their options open ever so slightly. For example, at one point in the report they say “At the same time, it is important for policymakers not to reduce their margins of manoeuvre to achieve the necessary consolidation by selectively putting certain measures — eg, tax rates, social welfare rates, and public sector pay rates – out of bounds”. That’s almost the only reference to extra taxes they make in the report.

In other words, the fiscal council may be endeavouring to speak truth to power. But it’s only one truth. There are others. And they’re every bit as important.

For example, no less a person than Ajai Chopra told the Kenmare Economics Conference this past weekend that Ireland is beginning to get on top of the banking crisis, but “very, very high” rates of unemployment mean it is too soon to “pop the champagne” (I didn’t know economists were into champagne. I always thought that was bankers and builders).

The essential reason we feel we have a need for a fiscal council is because the gap between what we take in taxes and what we spend is too high, and it’s unsustainable. We can’t live in debt, and we know it.

But why is that gap there? Partly it’s because irresponsible governments drove up spending in irresponsible ways. But a huge part of the reason is because the same irresponsible governments drove property prices through the roof, and became utterly dependent on the income from taxes on property transactions.

Now that income is gone. The construction industry has collapsed. That collapse is the single biggest contributor to the “very, very high” rates of unemployment that Ajai Chopra warns about. And the only response recommended — the only truth allowed — is to cut, cut, and cut again.

Well, here’s another truth. Every cut means that people who never benefited from the high property prices will have to pay for their collapse. Every cut will further undermine the fabric of an increasingly fragile society. Every cut will further deflate the economy and add to the strength of the vicious circle.

The real mark of a foolish government — only too well aware of harsh unpalatable facts — would be to adopt the views of the fiscal council as if they were the only truth.

NOBODY is arguing that we can get through this mess without cutting. It’s already the case, without any “truth” from the fiscal council or the Irish Times, that ministers like Joan Burton, James Reilly and Ruairi Quinn are facing decisions that will make them deeply unpopular. They will, I’m guessing, have the courage to take those decisions because there is no choice right now. And they will defend them on the basis that Ireland can’t recover without them.

But in taking those decisions, ministers will know full well that they are asking innocent people to pay for the crimes of others. People who didn’t cause the crisis have already shouldered huge cuts in their income and in the services on which they depend.

Thousands of people who took out mortgages in good faith, and for the sake of their families, are in deep personal crisis as a result. For perhaps the first time in our history, there are trends in suicide rates that are directly attributable to economic failure.

In other words, there’s a background and a context to all this that goes way beyond the fiscal. It’s a tragic and shameful context when you remember how it was caused. It means deep and painful cuts have to happen. But a proposal that cuts should be deeper than they already are, can’t just be accepted as the simple truth. In fact it could just be the worst solution of all.