Let’s hope nonsense policies get washed away before the rainy day

The rash of promises to spend on everything is all about engendering a feelgood factor, now, writes Gerard Howlin

THE opening of this election campaign is a Robert Mitchum moment for politicians.

The Hollywood star famously remarked to an actress “stick with me honey, and you’ll be farting through silk”. So it seems, depending who we choose to stick with.

The next 10 days will be saturated with policy proposals as parties set out their stalls. The following 10 days will be our chance to digest them, look at the form, and vote. We will be as influenced by the cut of their jib as the content of their policy. The fact is we are more likely to vote in a certain way if we have been personally canvassed. We like to be asked and it is a courtesy we remember. If we are out of sorts with a particular party but have met the local candidate, especially a sitting TD, we remember. “They” might be an awful shower but “she” or “he” is not so bad after all. There are endless calibrations in getting people out to vote and in influencing which way they vote.

The open parameters of the campaign are clear. It is about what can we afford and what to spend it on.

The final crunch will be our decision as to who, regardless of what we think of them, we are prepared to trust most, or maybe distrust least. There are no perfect choices, only hard decisions.

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It was very much with that final crunch decision in mind, the endgame of an election campaign likely to be the shortest ever, that Michael Noonan floated his idea for a rainy day fund. This is all about the optics of credibility and generating feelings of trust. It is Fine Gael and Noonan’s strong suite, they hope, and they are determined to play it.

The issue of trust and credibility will be essential for middle Ireland. The paradox that must be addressed politically is that while people never ever want the country to return to the louche economics of boom and bust, they do want a return to the credit-fuelled lifestyle they temporarily became accustomed to. These are essentially incompatible objectives. But in an election, the option of continuing the beatings until morale improves is not practical politics. Time has run out. Thence the abandonment of so-called austerity, more accurately sensible, overdue reform. The rash of promises to spend on everything from tax cuts to public services is all about engendering a feelgood factor, now.

That feelgood factor, to be credible, must be buttressed by ostensibly credible supports, thence the rainy day fund. It is primarily an instrument of moral theology or at least psychology rather than economics. It gives you perhaps permission, certainly absolution, to party again.

It is not a new idea, just a pale imitation of an old one. Charlie McCreey’s National Pension Reserve Fund was the big daddy of all the rainy day funds. It committed 1% of GNP for every year to 2025, was established by legislation, and was effectively beyond the maw of government. Its five independent commission members had only one objective to meet, and that was to maximise returns. No worthy objectives, no short-term exigencies, only long-term returns, Regrettably, but understandably, the State in crisis could not ask the IMF and EU for their rainy day money without putting our own on the table. The banks had to be recapitalised and there you go. A crying shame. Interesting, though, the investment in Bank of Ireland has made a positive return, and AIB has prospects of doing the same.

Michael Noonan envisages a fund of €2.5bn. Labour, not to be left out, prefers a more modest €1.9bn. But over what timeframe and on what terms? What is a rainy day? Let’s be clear. The National Pension Reserve Fund was raided in circumstances that were not envisaged. It did not survive an unforeseen crisis, thought it did help when it arrived.

These proposed funds now are so small and so loosely configured it is unclear that they serve any useful purpose at all except to tick an essential electoral prudence box, in a campaign characterised by over-promising. It’s like a Christmas club, you put money aside to party in season, not for an eventual old age. The party season envisaged, lest there be confusion, is the electoral cycle.

If vague iterations of a rainy day fund are key to persuading us to believe in our own prudence, the big issue is what exactly the available fiscal space is. If you are confused, be reassured. It’s all pure schnozzle. A note on the Department of Finance website defines it as “projected amount of resources available to the Government for additional expenditure and/or tax reductions, while ensuring compliance with the fiscal rules”.

In short, that translates as the money we have to spend between the floor of what we think we will have and the ceiling of what we are allowed to spend under EU rules.

It says the net fiscal space €8.6bn over the 2017-2021 period. If the tax system were not indexed, another €2bn potentially become available. An anticipated change in EU rules to do with how they measure Irish output, could potentially deliver another €1.5bn in so called fiscal space. That brings you up to the figure of €12bn Michael Noonan floated. All of the above is based on economic growth of 3%. If something goes pear shaped, forget it.

Back over in the Bah Humbug corner,

John McHale, the chairman of the Fiscal Advisory Council says we are looking at a figure closer to €3.2bn. He says we are not factoring in enough for inflation, demographics, indexation of existing expenditure, and taxation or public sector pay. The Government retort is technically correct. These issues are decided on a year by year basis. They are not obliged to index tax bands or pay the public service another cent after Haddington Road expires. Back in the real world, the chances of any, let alone all, of those pressures being turned back, are between slim and nil.

Still, I suppose, if you have a rainy day fund, aren’t you only the height of prudence?

TWO things are missing in this election. The first is credible maths. The second is a credible opposition capable of taking on the Government on its own terms, not the Willy Wonka chocolate factory economics that all are dipping into.

There is a gaping chasm beneath the electoral debate, large enough for the economy to fall into. But there is hope. This is only an election. What is promised may never happen. For all our sakes, let’s hope it does not. And anyway, for those who do get into government, the process of negotiating a programme for government based on incompatible manifestos, is an opportunity to plausibly shred the worst nonsense.

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