Fiscal Rules for Ireland

The Department of Finance held a seminar yesterday on various aspects of fiscal reform in Ireland, as a follow up to the report it issued a while ago.

I spoke on the design of fiscal rules.  My slides are here.

12 thoughts on “Fiscal Rules for Ireland”

  1. This would be the same Department of Finance that allowed over €200m of capital expenditure authorisation to issue almost overnight from the Dept of Education in late October / early November 2010 and yet would begrudge €50k on a modern sanitary toilet block for primary school children if they spotted it as a one liner item at any other time.

    I fear much idiocy is a direct cause of the way the Dept of Finance behaves and that other departments are wise to their ways.

  2. The fiscal council doesn’t have teeth And as such will be pointless.
    I predict that whatwill happen is that well-meaning, well-qualified, economists will be placed upon It. It will then be staffed by people from the Department of Finance. Nothing will happen.

  3. Are fiscal rules another one of these phenomena that were never a feature of life at the DoF while the FF boys were working their neoliberal magic? Up there with cost benefit analyses for projects and bank resolution legislation, that stuff that was only for old style economies run by little people.

  4. The cake is shrinking because of the fiscal rules and it will continue to shrink as more and more people head for the black economy because of corruption in government and the blatant tactic of saving the rich and well off at the expense of the easy targets down the pecking order. After all, that is what most of these papers and conferences are about.

    Fiscal rules for fiscal fools. What is the point in having fiscal rules, if those rules, are a moveable feast. When I see all the verbiage about reform at the DoF I laugh. The poor, eclectic souls down there, producing this stuff should cop on. They are a busted flush. More rules, statistics and reports will not change a thing, though it might spin out their jobs for another little while, which I suspect is the point of the whole exercise. Meanwhile down at the CB we have to pay millions out for outsiders to put their names at the bottom of reports because no one would pay a blind bit of heed to them otherwise.

    What were the rules for the NPRF? I am sure the verbiage was impressive. However, reality turns out to be the diametric opposite of the form of words used. That is Ireland, in a nut shell. Conferences, seminars, symposiums, commissions, committees, reports, inquiries,but at the end of the day it will all be done with the quiet ‘word in someone’s ear.

    My advice, for DoF mandarins. Put your hours in, coming up with strategies for running a country cut off from international credit markets but soon to be cut off from further bailouts and ECB funding.

  5. Even by my world-weary standards, some of the comments here seem pointlessly negative. If there is some law of nature that says the Irish can’t manage fiscal policy then we’re screwed. We may as well assume that if the country can produce judges who, whatever their other faults, do not routinely sell verdicts to the highest bidder, then we can also create a tolerably honest fiscal council.

  6. A predictably autistic report.
    Fiscal rules are a absurdity in a world of non-default of bank credit deposits and bonds.
    Correct me if I am wrong Philip but Goverment bonds are present on the asset side of commercial bank balance sheets.
    Liabilities such as seniors are present to take a loss Under Basel as they are defined as risk reserves

    However we now know that bank bonds cannot be defaulted on for some reason – they are acting more like goverment assets rather then liabilties.
    This means that like goverment bonds the bank bonds are extracting a private tax or rent from economic activities much like Goverment tax but using the mortgage as their prefered mechanism of collection.
    (remember if the interest on these bonds, both goverment and private disappear inflation will rise as people will have more money to spend)

    But the rewards are privatised !
    This explains the housing bubble – huge resourses were expended on construction that was net energy negative for society as a whole but the rent was still extracted as the CB gave a guarantee of a return despite its lack of economic performance.
    The ECB is acting as a quasi-corporate/sovergin entity which needs to reduce the size of Goverment debts so that its subjects will have enough money to service its private clients.
    In such a economic ecosystem any efforts to reduce fiscal debts will merely transfer more surplus revenue to the new quasi corporate / sovergin indirectly.
    Its clients will merely be empowered to take more cream from the formerly sovergin pie.
    This deliberate lack of understanding withen “goverment” circles is very disturbing.
    Its not the percentage of goverment debt relative to GDP that is the most important metric but the ratio of goverment debt relative to overall debt which substantially consists of private but extremely unproductive credit.

  7. On the matter of reform, the the no-nonsense attitude in the UK towards abuse of public funds would seem a useful model for Irish parliamentarians to ponder.

    And the OECD recommendations on legal fee transparency laid before government(s)? Tortoises at a disco move faster.

  8. @ All

    The unfortunate story of Ireland’s descent into near insolvency could be summed up – with only some exaggeration – in the following terms (i) introduction of Public Services Management Act 1997, with laudable intentions, results in confusion with regard to the responsibilities (and salaries) of politicians versus public servants (ii) this is followed by a loss of control of the purse strings by the Department of Finance (iii) the damage is compounded by the Public Service Management (Recruitment and Appointments) Act 2004 which abolishes the Civil Service and Local Appointments Commissions (both in existence since the early days of the State and which served it well through the recruitment of a qualified and politically impartial staff).

    Both of these pieces of legislation are still on the statute books. They read like the total twaddle that they are.

    The debate on the introduction of fiscal rules is completely surreal against the above background. The only saving grace is that all the baggage has had to be jettisoned and the return of the time-honoured pursuit of the necessary “Finance sanction” for both appointments and other expenditures may yet save the day.

  9. @DOCM
    Trained economists can punch holes in this Dork tale if the want……..

    Once upon a time there was a tiny juristiction surrounded by economic mammoths
    Its banks were compelled to hold a large ratio of its goverment bonds in its assets(strangely more foregin bonds from a nearby kingdom were held then domestic) , there was little demand for high leverage in mortgages etc as Goverment bonds kept a lid on demand – thus private credit creation was kept to a reasonable ratio relative to goverment debt.
    Then in the early seventies from abroad came the Heath administration in Britain , Basel in Switzerland and of course Wall Street – they changed the rules for global capital.

    New credit was created (this was in reality tempory capital extraction from the oil fields of Arabia and elsewhere that was not counted in the books as depletion)
    Over time Basel diluted the ratio of goverment debt relative to private debt securities – the price of the assets shadowing these new freed debt securities exploded as the real leverage in the system expanded ( remember Dork believes that only Goverment debt and cash is goverment money).
    The deposit liabilties also hyper inflated in a chicken and egg scenario – but the deposits that shadowed these “assets” were merely a artifact of Arabian oil – the “assets” were near worthless without external oil that was being depleted as they has no real net return / production.
    Now that the oil age is plateauing these credits are now progressing towards their true value.
    The classical gold standard days of the 19th and early 20th century was optimal for the fixed immobile coal capital of the day , when mobile oil began to replace this capital then the pure fiat system progressed along a hybrid system until Gold / Sov entities was totally replaced by the petro-dollar system.
    This tale does not have a happy ending…………

  10. @ Kevin Donoghue

    “We may as well assume that if the country can produce judges who, whatever their other faults, do not routinely sell verdicts to the highest bidder, then we can also create a tolerably honest fiscal council.”

    I note your choice of the word “rotunely”, “judges who do not routinely sell verdicts” and its inference of a substitute word; “occasionally”.

    By no stretch of the imagination, can we make that assumption of a functioning court system. Why do you think WCC (white collar crime) goes unpunished, while not paying a parking fine lands you in jail? Yes, I fully expect, the justice system to hang a few well chosen individuals out to dry and send them to jail but that is merely to preserve the optics of a functioning system and for self preservation. Obviously, if it was not all about optics they would already be in jail.

    It only takes a few occasional decisions, on the big ticket items, such as NAMA and the emergency bank Legislation to corrupt things. In MHO the courts in Ireland are no better or worse than any other tier of Irish society. However, you need a lot of money before you can play legal roulette at the four courts.

    Judge Peter Kelly being one honorable exception. “Justice” in Ireland is entirely predictable. It is always handed down according to whatever the governments of the day requires, or says it requires. It is no more separated from the Dail than is my hand from my brain. It is a carefully constructed edifice with the political system holding the trump card of appointments and the ace card of constitutional amendment.

  11. @ Dork of Cork

    You are a very clever lad. Yes indeed, cycling petro-dollars is what this world is all about. And, that is why we have some nasty events going on today in the Middle East and North Africa. Pity the poor devil who decides to price oil in anything other than greenbacks. We have plenty of evidence of what the results are. It will not be long before a certain Mr. “Bolivar” Chavez finds out just how dangerous the world of petro-dollars really is.

    And, to complicate to whole mess, on top of peak oil the producers have the double pincers of increased domestic consumption (Saudi up over 30% in five years, not to mention the BRICS) and the desperate need to buy off the locals with more trinkets so they don’t burn the entire opperation down.

    Oh, give me the good old days of $10 a barrel and I’d show you real growth. Welcome to stagflation with a vengeance.

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