With the state of our public finances, Brexit and the election of Donald Trump as US president, we must be prudent to ensure a stable future, writes Daniel McConnell
I’LL never forget it. I was sitting on a couch in Leinster House, head buried in my phone, when the next thing I know I am at the wrong end of a tirade.
The man having a go at me was none other than the late Brian Lenihan, the then minister for finance, who was making his way through the narrow corridors of the old house.
An agitated Lenihan, his face showing the effects of the cancer which prematurely caused his death, sought to take me to task.
He accused me of being overly negative and talking the economy down in my column the previous weekend. “You should really be more positive,” he told me with some force.
“I call it as I see it,” was my response but he was already gone, point made and not for arguing.
Lenihan met me a short time later, and we laughed the exchange off.
Such comments were common at the time from those in Fianna Fáil and the establishment accused of almost being treasonous for seeing the country’s plight in pessimistic terms.
Month after month, myself and my colleagues were being derided by officials and politicians because of our negative reportage of Ireland’s demise.
What happened was we were reporting anecdotally on the collapse of the economy through the prism of emptying shops, factories closing and house price plummets.
It took several months for those anecdotes to feed into national data and sorry to say our fore-warnings came true and then some.
Now, unfortunately, after several years of recovery, dark clouds are once again beginning to gather over Ireland’s shores.
Indeed, politicians within Government and in Opposition are now waking up to the very real threat that next year we will again be talking the language of budget cuts.
What am I talking about? Surely, the country is flying again and the crash is long behind us.
Didn’t we grow by 26% last year and aren’t we awash with billions of additional corporation tax revenues?
Yes, technically that is true, but woeful decision-making about future spending commitments, the impact of Brexit and looming public sector pay hikes, all threaten to poison our delight.
Indeed, the last two budgets in Ireland were the only ones since 2008 where the Government didn’t cut to public spending.
After nine austerity budgets, Budget 2016 introduced in October last year was a shameless and reckless €3bn giveaway by a desperate Fine Gael and Labour coalition which ultimately failed to rescue their Coalition in February’s election.
The scars of those austerity budgets were not easily washed away and the vengeful Irish electorate took their pound of flesh, primarily from the Labour Party.
This is because the two previous governments socialised more than €60bn worth of banking debt, while inflicting horrendous pain on the backs of the people of Ireland.
Cuts to pensions, salaries, increased taxes on property, water and income, and cuts to frontline services which caused unimaginable suffering to some of the country’s most vulnerable have been the hallmark of Fianna Fáil’s and Fine Gael’s cruel brand of austerity.
In the run up to February’s election, we heard the future of the Irish economy was bright.
We heard that between now and 2021, we would have up to €12 billion in “fiscal space” or in plain speak, extra money to spend, according Michael Noonan.
Noonan, the supposed great Midas of finance on February 6, then reduced his fiscal space to €10.2bn.
Noonan was undermined from the off as the Irish Fiscal Advisory Council (IFAC) said the amount of fiscal space was only €3.2bn.
Desperately trying to regain lost ground, Noonan said Fine Gael’s position was “consistent” with the €8.6bn identified by the Department of Finance last October.
His number merely included an extra €1.5bn allowed under loosened EU budgetary rules from 2018.
Noonan’s grand plan to abolish the Universal Social Charge (USC) also received a cool reception from a public who wanted to see money restored to services for the elderly, the sick and the young.
So having failed to convince the electorate with his giveaway budget or with his dodgy fiscal space numbers, Noonan appears to have learned nothing.
Months before this year’s budget, signs of a slowing economy were emerging.
June 23’s decision by the British people to leave the European Union (EU), is the greatest negative force to hit Ireland and its impact is already biting hard.
Noonan and Paschal Donohoe for months insisted the Budget 2017 numbers were not going to be impacted by Brexit, but could give no such guarantees for next year.
The sort of anecdotal slowdowns we reported on in 2008 and 2009 are beginning to happen again, particularly in the border counties.
For the first time since the crash, the road to Newry is chock-a-block with southern shoppers seeking a bargain, given the collapse in sterling.
But Brexit is not our only worry.
The election of Donald Trump this week, further complicates an already uncertain world.
Growth rates for this year have been downgraded numerous times and next year’s forecasts look set to be reduced.
Then take into account the growing unrest over public sector pay is placing significant pressure on the limited amount of fiscal space for next year.
At most, the fiscal space for next year was likely to be in the region of €500m and that is already likely to fall because of the slowing economy.
“We are looking at at least one if not two cutting budgets, the way things are going. The other problem is that many of the measures agreed to this year will require more money to fund next year, by the tune of €300m or so,” said one senior source.
So as we head into a far more uncertain Christmas than we were 12 months ago, it has to be asked, can we afford to continue on a road of seeking to cut the USC and income tax.
I suspect, sooner or later, Noonan will have to announce that his plan to phase out USC by 2021 will have to be delayed.
I also suspect that the weakness of the Government will make the arithmetic for next year incredibly difficult for Donohoe to solve satisfactorily.
We have heard much in recent weeks about the centre holding, but what we need now is clarity as to how robust the economy is.
The Cowen government was guilty of sleepwalking into the greatest financial crash in history.
Donohoe is adamant that by the time he leaves his department, such a failure will not be replicated.
There is increasing doubt that the Irish economy can avoid a volatile downturn given the turbulent events of the year.
But, as with Brexit, surely it must be prudent to prepare for the worst-case scenario.
To do anything else, would be to risk the country slipping back into a turmoil most of us thought we would never see again.
We can only hope.
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