A Fiscal Council for Ireland

The idea of establishing some kind of fiscal council seems to be gaining momentum.  Minister Lenihan expressed interest in this idea last week; it featured in speeches by Eamon Gilmore and Joan Burton last week; it is also Fine Gael policy. An editorial in today’s Irish Times also endorses the idea – you can read it here.

24 replies on “A Fiscal Council for Ireland”

A fiscal council? Is that like an Office for Budgetary Responsibility – the recent UK creation – see here for some details http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2010/05/why_the_obr_matters.html

Of course the UK has had an independent Monetary Policy Committee organ for over a decade, the MPC at the Bank of England – that still didn’t stop the mess of UK banks expanding the money supply by buying American subprime mortgage packages and the consequent Northern Rock, RBS, Halifax fiascos.

Although there seems to be great interest in repairing the stable doors now that the horse has bolted, got shot and ended up as glue, I wonder will the new structures be flexible enough in a decade or two when the next uncomfortable truth emerges when no-one wants to spoil the party?

BTW, I think an independent fiscal council would be fantastic because a particular feature of Irish politics is fiscal irresponsibility when faced with elections.

Could it be as effective as the Board of the Central Bank and Financial Services Authority of Ireland was in preventing the credit bubble?

It is noteworthy that not a single word of criticism of that board featured from the sainted Patrick Honohan in his eponymous report while the boards of commercial banks were heavily (and rightfully) criticised. Odd.

This is the problem of committees of the Great and the Bad – they are wholly unaccountable, even when they preside over disaster. Better then to leave authority with the minister, who is accountable.

It is great to see this proposal from Philip Lane gaining currency. The important thing is that the end product will be as close as possible to Philip Lane’s model. The danger is that the DoF will try to emasculate the proposal if and when they finally get their hands on it. In any event, the fact that it has been picked up by all three major political parties is a huge step forward.

I echo Zhou’s plaudits and optimism while also sharing his unease about the DoF. But I also get a little uneasy when an apparent politcial consensus of this nature emerges. I can understand the main opposition parties being in support as they wish to exercise some fiscal restraint on this Government which retains constitutional legitimacy, but lacks any vestige of democratic legitimacy. (I also suspect they would resent any constraints that might be imposed by such a body were they in power.)

My sense is that the Government seems prepared to consider this development because, with Ireland’s fiscal policy being determined utlimately by the European Commission – and will be until GSP constraints are satisfied, it may be spun to convey the impression that Ireland retains some fiscal sovereignty. It also helps the Government, when harsh fiscal adjustments are being imposed, to sub-contract some responsibility to another body.

I fear this will be another optical illusion similar to the “independent” regulation of the banking, financial and utility sectors. The appointment of Governor Honohan and Mr. Elderfield means that regulation of banking and finance is beginning to resemble what it says on the tin. Utility regulation continues to be an optical illusion and, in this instance, the political and civil service instinct will be to create another optical illusion.

First of all, the Government has a full democratic mandate in accordance with out democratically adopted Constitution and in accordance with proper democratic procedures. They have total democratic legitimacy and this is accepted by the people becasue the people stand by the Constitution. To separate democratic legitimacy from democratically adopted rules and democratic institutions is to set off down a dark and dangerous road. Fianna Fail, the PDs and now the Greens and the independents have given us political stability over the last couple of years when it mattered most.

Secondly, the Government are deeply unhappy at how things have gone with the economy and desperate to take all measures to stop it happening again (just the same as every other right thinking member of the population).

Thirdly, the opposition parties are proposing reforms which will constrain them as the next Government. Therefore the charge that they would oppose them if in power is incorrect.

Whilst politicians do not enjoy the social standing that they used to enjoy, we should not paint them all as some species of ghouls!

@Zhou,

You appear to pronounce with some authority and with the kind of conviction that betrays access to knowledge that the rest of us plebs do not have. Therefore, I’m at a distinct disadvantage.

It is probably impossible to separate raw politics from issues of democratic governance, so, perhaps, these should be left to another board.

However, I will make one observation. Far from painting politicians as some “species of ghouls”, I have respect for them as the democratically elected representatives of the people. The problem I see is that, since the exercise of power is a primary motivation to seek elected office, there is a continuing conflict between the need to ensure effective transparency, scrutiny and accountability and a desire to ensure that these requirements do not constrain the discretionary exercise of power. Those in power will be loth to fetter their discretion; those in opposition, but aspiring to power, will seek to avoid creating too severe a rod for their own backs should they acquire power.

Unfortunately, the public interest is very much in second place when the balance between these conflicting desires and urges is determined. There is no easy answer, but an appropriately empowered parliament with a healthy scepticism of the executive is a good start. Instead, we have a rubber-stamping talking shop, the tyranny of faction and two catch-all parties that divide coherent groupings of social and economic interests which, in most other EU democracies, are represented in a more unified manner and, ultimately, in the public interest.

@Paul Hunt

Don’t mistake a pompous writing style for authority 🙂 .

I suppose the big point here is that we have a very big crisis so let’s not waste it. Reform is needed as you have previously said.

This is a welcome development indeed. It will be interesting to see how the Government will act when the views of the Irish Fiscal Council will differ from the views of the Commission (I would be surprised if they would not differ sometimes!).

Ahh a fiscal council, presumably led by the previous head of the CB, with a ex GS of the DOF plus a rep from Brussels. Add in a couple of academics and some reps from the SPs (perhaps including Fr. Sean). That could be really effective.

Would there be room for a novellist on this council?

@tull
Yeah, it’s hard to get excited about. What would be different to the ESRI? Or the various wrong-headed institutions already in existence?

The new independent fiscal council in the UK, the Office for Budget Responsibility, said last week that forecasts for the public finances contain “huge uncertainties.” It noted that on past form, there is only a one in five chance that the borrowing forecast for 2014-15 will be out by less than £15bn.

The UK government is committed to accepting the OBR’s forecasts.

Is Irish forecasting better or worse?

I assume the usual suspects would be on the committee?

Not any critic of the government? Representatives from banks, stockbrokers, trades unions and the clergy?

Ireland has a massive stimulus in the form of one of the biggest ever deficits, in the history of the OECD at least. That needs to be reduced. NOW! Then we can have jobs for the boys….

The question is not whether a fiscal council is a good idea or not–more expertise and advice at the highest levels are of course good things. That’s why all political parties have signed up to the notion of a fiscal council right away.

The question is the teeth the operationalised version of the fiscal council will have. Can the fiscal council compel Ministers to reply to their recommendations when the Minister decides not to follow these recommendations? Will the fiscal council exist on a statutory basis? Will their funding be guaranteed, or can the council die a death by 1000 cuts like the Equality Authority if they do things the incumbent government doesn’t like? Will the fiscal council be well resourced–are the people who run it considered civil servants on comparable pay scales or NTMA-esque boffins brought in on their own terms?

@Stephen,

Agreed. How this is set up is very important and that will depend on a number of things, including just how much real power, if any, politicians are prepared to concede to it. We may end up with something that is called a ‘Fiscal Council’, but is far removed from being anything of the kind that John McHale originally envisaged.

A second concern is that this proposal may share the fate of Senate reform – lots of proposals over the years, keenly debated and warmly welcomed as necessary by all parties, and then quietly buried or talked out to death. Further, a Fiscal Council is hardly a politically sexy proposition; quite the opposite. The Budget and the pomp and secrecy that surround it remains one fo the great set pieces of political theatre in Ireland. Besides, it can do wonders for a government’s poll ratings and popularity; or the opposition’s, if they can create a maelstrom around some aspect of it. The media devote acres of newsprint to speculation about what may be in the Budget and subsequent analysis of its key provisions. There’s a whole industry of lobbyists, PR agents, financial analysts etc. that depend on the current system.

If we had a Fiscal Council we might never have had the abolition of third level fees; nor SSIAs, nor ‘free’ medical cards for the over-seventies nor a host of other policy decisions that have turned out to be not so wise after the event but were hailed as the best thing ever when they were first announced.

It’s not enough to have the various financial spokespersons paying lip service to the idea of a Fiscal Council, or to have the Irish Times endorsing the concept. It needs to have some momentum behind it and a far broader base of support if it’s going to come to anything.

Oops! Apologies to Philip Lane! It must be all that sunshine or even an early senior moment that has me getting names confused.

@Veronica,

The fiscal council, to be effective, needs to thread the needle’s eye between the important political theatre you correctly identify, and the back-room “jaysus lads, don’t do that” guru stuff that needs to be done as well. It will be about balancing interests, and for that the council needs permanence, money, power, and the right people. The chances of it getting all of these things is pretty slim, as the council inserts itself between DoFinance, the NTMA, DoTaoiseach, the Central Bank, and other sundry players on the policy scene. Still I remain hopeful that this council will do what is required, and will also join up with other European nations’ fiscal councils to coordinate policy a bit better.

@SK

who does the fiscal council advocate to. The DOF & the Cabinet or the entity where control over Irish fscal policy resides…the EC?

@Tull, very good questions, I would assume/presume they advocate to the Minister via the DoF? Would that not make the most sense? Perhaps Philip has the mechanics worked out already, I’m not sure.

@ Stephen,

what is the point of that? Since our fiscal policy is now determined the EC, ought that not be the body to which this council makes reps?

[…] in Dublin, and I agree with the article. On my way to the island, I read some papers proposing an Irish Fiscal Council. The idea is, more or less, old school counter-cyclical government spending. It’s old wine in […]

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