Fergus Finlay: Boom, Bertie, and busts — let’s not get boomier this time around

Finance Minister Paschal Donohoe says it is far too soon to be talking about an economic boom, contradicting what the Central Bank is predicting. Picture: Niall Carson/PA Wire

Barring accidents, it seems we’re going to have an economic boom. And by all accounts, it’s going to last for years. The question is — if we can avoid the accidents, what sort of a miracle will we need to prevent us blowing the boom?

The boom is on the way — there seems to be little doubt about that. You mightn’t be feeling it yet, but all the wild-eyed woolly left-wingers and crazy radicals are predicting it. Take the ESRI, for instance, that bastion of nutty liberalism. Their latest pronouncement (yes, they do hedge it around with some risks about Covid) says:

“… we expect overall strong growth this year, with Irish GDP set to increase by 13.6 per cent… the domestic economy as measured by modified domestic demand (MDD), is expected to grow by 6.2 per cent in the present year. Into 2022, we expect a continued strong performance of the economy, with both MDD and GDP set to increase by 7 per cent.” You’d expect that, of course, from the soft hearts in the ESRI. If you want a bit of caution, go to the Central Bank. No radicals there, thank goodness. But what’s this? There’s a new quarterly bulletin out from them, and it’s all summed up in an infographic on the website. Over 7% growth in domestic demand this year, more than 5% next year, and just under 5% the year after that. What’s more, unemployment is predicted to drop like a stone, and inflation is forecast to level out, after a bumpy ride this year.

Gone mad? 

Have they all gone mad or what? Our Finance Minister Paschal Donohoe seems to think so. Far too soon to be talking about that kind of stuff, I heard him say on the radio the other day. Oh sure, the Government has been great, he added, but we’re not talking boom yet.

He might have been remembering Bertie. Remember Bertie, the last time inflation looked like it was getting out of control, just before the great collapse? He had a simple explanation back then for inflation. It’s only, he said, because the boom is getting boomier.

We’ll get back to Bertie in a minute. But inflation is of course one of the big risks. None of the commentators are saying it right now, because the general assumption is that there are two great causes for our current inflation rate — energy prices and supply issues caused by the pandemic (and by Brexit). They’ll be fixed soon enough, the experts say (so they don’t seem to be factoring in a war between Mr Putin and the rest of the world ).

But if inflation does go on at a high level, we all know what’s going to happen then, right? You’ll start to hear the experts on the radio wondering about what’s going to happen at the next meeting of the Fed or the European Central Bank. Because that’s always the default response to ongoing inflation — put the interest rates up.

I’m not saying it’s going to happen anytime soon (sure what would I know?), but it’s what has always happened in the past when booms got boomier. And it’s hard to imagine anything worse, especially for young people trying to own their own home (or who’ve just managed to scramble onto the property ladder) than an increase in mortgage rates. What a kick in the teeth that would be for anyone who had struggled through the pandemic.

Let’s assume none of that happens. Let’s assume (and hope) the Central Bank is right and we’re in for three years at least of sustained economic growth. How can we blow it? Politics, that’s how. It’s time to remember Bertie again. Let me remind you of a little story.

Former taoiseach Bertie Ahern and former finance minister Charlie McCreevy 'bought' the 2002 general election with giveaways. File picture: Maurice O'Mahony

At a time when the economy was going gangbusters, just like we’re told is happening now, Bertie’s 2002 budget (technically Charlie McCreevy’s, but you know what I mean) contained a £25 increase in Child Benefit for each of the first two children in every family, and £30 for every child after that. It would be paid, said the minister, in May 2002 but backdated to April.

Come the first Tuesday in May that year (the 7th, it was) a lot of mothers almost staggered out of post offices under the weight of the extra money Bertie had organised. A general election took place exactly 10 days later, and guess who got re-elected?

All told that year, public spending went up by more than 20% — for the one and only purpose of buying an election. To make matters worse, the election was immediately followed by the collapse of the so-called dotcom bubble, and after giving it all away they were forced to claw some of it back. That didn’t stop them doing exactly the same give-away five years later (remember the SSIAs?), even though the economy by then was teetering on the brink of another bubble about to burst.

National humiliation

We suffered our greatest ever national humiliation in 2011 when our sovereignty had to be relinquished because we couldn’t deal with problems we had created ourselves. There were three main reasons. Terrible political choices, terrible relationships involving politics, developers and banks, and terrible regulation. All of it — at least the bit that wasn’t motivated by greed — was driven by the endless search for political popularity.

So here we are again. Over the next few years, there will be interesting choices to make. A lot of them will be about how to spend increased resources wisely and well. The environment, housing, healthcare, education, childcare — are all areas where there will be legitimate pulls on the public purse.

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At the same time, we’re moving inexorably into an election phase of the political cycle. And it will be one where the established political parties see an existential threat looming. There will be an overwhelming temptation to start to buy the next general election — there’ll even be some who will argue that it’s in the national interest. Anything to prevent Sinn Féin from office. (And by the way, they’ll be no shrinking violets themselves when it comes to buying our votes.) Now is the time, at the start of a period of growth, to spell out not just the best way to go, but also the worst way. It may not be popular, but each and every political party should be asked to make a declaration now that in the context of the next election they will not be proposing any tax reductions. No tax cuts for individuals, none for sectors, none for any businesses.

They should also seek to agree among themselves well before the next election on what is a reasonable way to approach the national debt. It can’t continue to climb inexorably, but it doesn’t need to be addressed as if it’s a huge crisis either.

The bottom line is this. If there’s extra wealth, it should be spent sustainably. On the climate, and on reforming and enhancing the services that are essential to national quality of life. And that needs to focus on those who don’t have it now. That’s good politics. And if we’re not going to blow the boom, it’s what we need.