While there has been much comment about the four-year fiscal plan since the government announced it last month, it is still not clear what sort of plan they have in mind. At one end of spectrum (the relatively useless end) would be new targets for current spending, capital spending and tax revenues, with possibly a listing of “realistic options” for achieving those targets. At the other end of the spectrum would be a true multi-year budget, with detailed phased measures that are legislated where possible.
The government’s statement yesterday hardly suggests that a proper multi-year budget is what they have in mind:
The purpose of the Four Year Plan for Budgets and Economic Growth is to chart a credible way forward for this country. The size of the adjustment for 2011 and the distribution over the remaining years will be announced in the Four Year Plan. The Plan will contain targets for growth and strategies for the achievement of those targets.
When exactly did the four-year plan become a plan for economic growth? While returning the economy to growth is a critical part of the overall challenge, the four-year plan had a specific and urgent goal: to convince potential buyers of Irish debt that Ireland could lower its borrowing requirement sufficiently to avoid a bailout or default. Of course, decent economic growth will make this challenge easier, but I can’t see how the “year-by-year, sector-by-sector” fiscal plan expected by the EU Commission is the place for growth targets and strategies. We have to worry that the “targets and strategies” are filler to distract from the paucity of the fiscal plan itself.
Minister Lenihan also confirmed yesterday a nominal cumulative deficit adjustment target of €15 billion by 2014. The debate has now switched to how much to front–load this adjustment in 2011. Of course, the necessary front-loading depends on the credibility of the overall plan. The more investors have doubts that we can make good on our promises, the more they will need to see the money taken out up front – that is, the more the adjustment must be inefficiently concentrated at the time when our anticipated output and employment gaps are at their largest. Having to front–load because the government (and opposition) can’t or won’t deliver a true multi-year plan would be a serious policy failure.