Jim Power: Momentum good going into 2017 but challenges remain

Last week, I wrote about how strange and interesting 2016 was from a global political perspective. However, it was also a strange and interesting year from a domestic political and economic perspective.
Jim Power: Momentum good going into 2017 but challenges remain

In theory, the incumbent government went into the general election, in February, in a strong position. Since taking office, in 2011, it had steered the economy out of the darkest and deepest hole in which it arguably had ever found itself.

Granted, Ireland benefited enormously from benign external developments, particularly on the currency and interest rate front. However, it also required strong and stable leadership, which the Government provided, to a certain extent.

Arguably, the arrogant stance taken by the largest party of government, during the election campaign, and the total failure to admit to the deep problems that still needed to be addressed, were the undoing of Fine Gael.

That party’s election campaign is a good template for how not to do it. And the Labour Party went the way of almost all smaller parties in coalition arrangements.

The net result of the February election was the creation of a government that is powerless and which has about as much clout as the Catholic Church in modern Ireland.

The inability to put the ‘water issue’ to bed is utterly pathetic, and disillusioning for those of us who abide by the law and who paid our charges. I now look forward to my refund, which will finance my Bob Dylan concert in May. Incidentally, his Nobel Prize was the highlight of the year, for me.

All in all, Ireland is not characterised by strong and stable political leadership. That is unfortunate, given the challenges facing us in 2017, from issues such as Brexit to militant and greedy public sector unions, and the demand for better public services.

Economically, 2016 was also a strange year for Ireland. I attended the Central Statistics Office briefing in July, when officials calmly announced that growth in GDP in 2015 was revised upwards from a previously unbelievable 7.8% to an even more unbelievable 26.3%.

The CSO reported the statistics in the correct manner, but the notion that a developed economy could grow by 26.3% defies logic.

Economics Nobel laureate, Paul Krugman, immediately tweeted “Leprechaun Economics”, while, personally, I even got a phone call from a female journalist, in Chile, who was looking for an explanation of the numbers. This never happened to me before.

The real significance of Mr Krugman’s tweet, and my call from Chile, is that Ireland’s corporate tax structures are now very much the focus of much unwanted global attention. This will only intensify in 2017.

In early December, I attended the CSO’s briefing on the third-quarter growth numbers and it, too, felt a little bit like July.

GDP expanded by 4% during the quarter and GNP expanded by 3.2%. These are massive quarterly growth numbers, and if they were real we would be living through boom times, which we certainly are not.

The problem in 2015 and 2016 is that the movement of intellectual property rights into Ireland, for tax reasons, is seriously distorting the growth numbers and the overall sense of our economy. Unfortunately, due to reasons of confidentiality, the CSO is not in a position to point out that certain companies did certain things during the year.

That needs to change, if we are to make any real sense of what is actually going on in the economy. It would also enhance Ireland’s external image.

Despite the very distorted growth rates, the economy did perform quite well in 2016.

The labour market improved markedly; tax revenues expanded strongly; consumer spending was quite good; and tourism had a record year.

This all suggests that the momentum is good going into 2017, but the challenges facing us over the coming year are very significant and will require a strong and stable government, which we do not have. Finally, I would like to wish all readers a happy and healthy 2017.

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