Well done to Prof John McHale and his colleagues for this courageous and (from reading so far!) considered document.
With the Fiscal Responsibility Bill published, and with Budget 2013 now hoving into view, it might be a good time for John to explain on the national stage, what role the Council is to have. Also how the Council will deal with the issue of documents in the run-up to Budget 2013 and indeed how it will react to the Budget itself.
Last year, the Government acknowledged the Council’s recommendations but ignored them. If Ireland is to have an independent fiscal council, then this year, there should be strong public focus on how the Council acts and how its recommendations and statements are interpreted by Government.
Off thread: Update – Dutch Elections
09/13/2012
Election in the Netherlands
Dutch Voters Choose Pro-European Parties
The incumbent conservative-liberal VVD party has won the Dutch election, with the center-left Labor Party coming in second. The result is a show of support for the current government’s euro-crisis policies and a rejection of euroskeptic parties, with right-wing populist Geert Wilders suffering a major defeat.
I think the FC are correct in this assessment. We need to do more…. but where will it come from? Taxes? Cuts? Perhaps we should bring back the old window tax…. including every pane of glass in your face if you wear glasses and all of those on your house, office, car, etc. Alternatively, we could actually go through with cuts aimed at the old and infirm that they are always threatening but then doing U-turns on.
I guess it will be SW, health and education then.
I have no doubt though that the government will mouth a few platitudes (er, give it their full consideration) and then just ignore the advice (er, decide that not doing it is in the best interests of the country and that economic growth will suddenly appear out of nowhere in some new forecast to show that it’s not needed anyway).
Collapse in demand due to austerity demands more austerity. Shocking.
@Shay
You must have been reading the new car sales that came out today (down 14%).
Government advised to cut extra €1.9bn before 2016
DAN O’BRIEN, Economics Editor
The Irish Fiscal Advisory Council (IFAC) has urged the Government to be more ambitious in tackling the budget deficit over the next three years.
The new independent watchdog is tasked with overseeing the management of the public finances. In the third report since its establishment in the middle of last year, it urged the Government to add a further €1.9 billion in adjustments to the planned €8.6 billion over the 2013-15 period.
…
Sinn Féin deputy leader Mary Lou McDonald TD said the call by the Fiscal Council for the government to add an extra €1.9 billion in spending cuts and tax rises between now and 2015 was ‘reckless’ and ‘would damage the economy, further undermine vital front line public services, and hurt families’.
“The economy urgently needs more investment not more austerity. Getting people off the dole and back paying taxes is the surest route to deficit reduction. Cutting government spending and the disposable incomes of low and middle income earners will further depress the domestic economy and lead to more job losses.”
[Gerry Adams] said that the Government-appointed Fiscal Advisory Council should “get lost” after it proposed this morning that the Government make an additional €1.9 billion in cuts and tax hikes, over and above the already-agreed adjustments, between now and 2015.
“It is reckless what they are advocating,” he said, adding that additional cuts would have a huge impact on those already struggling to make ends meet.
Perhaps Gerry and Mary Lou have a cunning plan to obtain the necessary funds to act as they suggest?
Maybe they will share it with the rest of us!
Have they met Angela’s base yet?
I still need to spend more time looking at it, but first impressions are that it is an excellent piece of work. The speed of fiscal adjustment they recommend is still rather slow, but is much more responsible than the coninued crawling pace envisaged by the government.
IFAC ably highlight how poorly understood the post-bubble Irish economy is understood.
They also ably highlight how Irish government and other forecasters have regularly overestimated medium term growth prospects since the crisis hit. I think they are overly kind, however, to make fan projections based on official projections, and comment that the risks are on the downside. A fairer, but less kind, perspective would be that there has been a systematic upward bias in forecasts since 2007/8, and it is likely that bias persists.
Using a fan chart methodology, the report finds a 40% chance that the debt to GDP ratio will fail to stabilise by 2015 under the current policy framework. If there is a systematic upward bias in forecasts, this 40% must actually severely understate the risk of failure to stabilise. Just based on what’s in the report, I’m guessing the probabllity of failing to stabilise by 2015 must be more of the order of 80%.
The proposed hybrid macroeconomic measure against which debt sustainability should be judged is a valuable contribution to the debate. I hope to see it adopted by the Department of Finance and the Troika, inconvenient though that will be for them.
I just read that the advice is ‘not binding’
@grumpy
as I’ve noted on previous threads – when it comes to ‘fiscal’ the real question is ‘HOW?’ and the IFAC has noting to say on this.
I have no objection whatsoever to accelerating the adjustment but evidence to dats [disability assistants, home care, etc] is that it is rightly skewed towards the lower middle and underclass while many ‘protected interests’ remain .. er. protected. I see no evidence that this admin has the balls to take on these vested interests – if they had the €1.9 billion would be possible. I therefore tend to view Sinn Féin opposition as useful and necessary and they have consistently come up with fully costed proposals. I do not see Fianna Fail or what’s left of them to have any legitimacy in this area and quite a few of their senior members, like Mick McDowell, appear to have forgotten the concept of collective cabinet responsibility ….
When it comes to ‘Fiscal’ it is all about the ‘How?’
@David O’D,
IFAC are not silent on where the adjustment might come from.
“Given the extent of the required total adjustment, the Council again urges that all adjustment margins be kept under close review, including tax rates, public-sector pay/pensions, and welfare rates.”
Grumpy,
Based on past experience, the alternative could involve QE or a long term zero interest “loan” from a Bank. Perhaps the stockpiling of ink had a purpose.
@BCT
The Orthodox generalist statement – but no ‘specifics’.
It is a fine line that the government must walk. If you cut too much, then you will suppress consumer spending. The current (positive) 2013 GDP forecasts are based on the assumption of broadly flat consumer spending. It wouldn’t take much of a shock to sentiment to see that fall again with obvious knock-on effects to tax take and the ultimate exchequer deficit.
The Council makes a very pertinent point about the credibility of growth forecasts for 2014 and 2015.
An analysis of forecast errors over the period 1995 to 2011 indicates that the pattern of past forecast errors is similar across agencies. Current Department of Finance forecasts for 2012-2015 are also similar to forecasts of other agencies. In general, forecasters remain of the view that growth rates of about 3 per cent will return over a two- to three-year horizon, although earlier forecasts of such a rebound have not materialised.
David O’Donnell also makes a pertinent point because it’s universal that insiders would give priority to targeting the disenfranchised rather than their own perks – – look no further than the public representatives, irrespective of hue.
I cited ludicrous appeals to patriotism on dispensing generic drugs in the recent past and the litany could go on.
The carnival barkers here of course have little to fear as long as Minister Brendan Howlin is marooned in the doldrums in his ‘Reform’ punt.
Economists don’t know how to measure the true rate of economic growth, because they can’t model the consumer’s perspective on technological advancement. Alex Gheg has released a new framework that can solve this problem. The hidden thoughts and feelings of people can be indirectly measured using the very accurate internal body clock, that we all have. Pleasure contracts time in the human mind, and we can see how this changes our daily circadian rhythms. See some facts and be amazed. Quantity, quality, variety and convenience in one equation. http://www.youtube.com/watch?v=u6tFLGpcOpE
Still no structural changes recommended. I’ve got one – make all the Universities independent in the morning. Government funding for select research initiatives, infrastructure and obviously student enrollment would continue – on the Government’s terms. After that it would be up to the universities to run a balanced budget. If that means firing staff or cutting pay (or indeed hiring staff and increasing pay) then so be it.
The same principle should eventually apply to hospitals but that change would have to be made less dramatically to avoid harm.
The unions will want to have national pay agreements – and maybe they’ll get them as well. Having a national pay agreement does not mean you can’t fire people you don’t need, or cut pay if you deem staff earn too much, it just means that the Universities would agree to pay a certain rate for a certain job regardless of the location. The pay rate would be linked to the job not the person.
I don’t think recommendations on structural changes are within IFAC’s mandate. It’s a *fiscal* advisory council.
On the record of economic forecasts, they are generally no more useful than the old habit of equity market strategists’ twelve month forecasts being:
Today’s index value + Approx 10% (always accompanied by plausible arguments as to why it could turn out that way). Remember Abbey Joseph Cohen at the Squid?
They were of little use, easily over-relied upon by clients, and embarrassing.
A few bear markets kind of eventually made that less habitual.
Apologies if you have already read this, last time it got an outing was in May, but IMHO, you cannot dredge this out too often:
“A thespian formerly of this parish used the rule of thumb in that analysis, a biro and an envelope to demolish Noonan’s forecasts. This is five minutes work and a bit of nouse from Gavin Kostick in April 2011. From Gavin:
“@ Eamon Moran and Grumpy
This from “The Irish Economy in Perspective June 2011 Department of Finance”
P. 33 (where there is also a nice chart)
“Following a contraction of 1% in 2010, there is now a broad consensus that the Irish economy will return to annual growth this year. While near-term prospects remain subdued on the whole – reflecting significant headwinds on the domestic front – a strong export performance is expected to translate into GDP growth of around ¾% in 2011 and 2½% in 2012 (see Chart above).
Turning to the medium term, the Irish economy is forecast to grow on average by 3% per annum over the period 2013-15.”
So 0.75%, 2.5%, 3%.
Applying yer man’s average ‘optimistic tendency’ of +0.2, +0.8, +1.5 (years 1, 2 & 3).
We get a prediction of 0.55% for 2011, 1.7% for 2012 and 1.5% for 2013
Can’t wait – must come back and check.”
What is Michael Noonan’s line going to be after the referendum is passed?”
Can the budget stretch to updating the back of Gavin’s envelope? 😉
The Fed has launched qe3. The US is over 60 months into the crisis and the economy is still reeling. Not ideal for irish growth projections.
On the record of economic forecasts, they are generally no more useful than the old habit of equity market strategists’ twelve month forecasts being:
Today’s index value + Approx 10% (always accompanied by plausible arguments as to why it could turn out that way).
They were of little use, easily over-relied upon by clients, and embarrassing to write.
A few bear markets kind of eventually made that less habitual.
Apologies if you have already read this, last time it got an outing was in May, but IMHO, you cannot dredge this out too often:
“A thespian formerly of this parish used the rule of thumb in that analysis, a biro and an envelope to demolish Noonan’s forecasts. This is five minutes work and a bit of nouse from Gavin Kostick in April 2011. From Gavin:
“@ Eamon Moran and Grumpy
This from “The Irish Economy in Perspective June 2011 Department of Finance”
P. 33 (where there is also a nice chart)
“Following a contraction of 1% in 2010, there is now a broad consensus that the Irish economy will return to annual growth this year. While near-term prospects remain subdued on the whole – reflecting significant headwinds on the domestic front – a strong export performance is expected to translate into GDP growth of around ¾% in 2011 and 2½% in 2012 (see Chart above).
Turning to the medium term, the Irish economy is forecast to grow on average by 3% per annum over the period 2013-15.”
So 0.75%, 2.5%, 3%.
Applying yer man’s average ‘optimistic tendency’ of +0.2, +0.8, +1.5 (years 1, 2 & 3).
We get a prediction of 0.55% for 2011, 1.7% for 2012 and 1.5% for 2013
Can’t wait – must come back and check.”
What is Michael Noonan’s line going to be after the referendum is passed?”
Can the budget stretch to updating the back of Gavin’s envelope? 😉
Skimming through the report, the most relevant part from my point of view was -The government’s Stimulus Programme-P49
My interpretation of the following is that a stimulus program is necessary and should be done, but within the current parameter limits.
“Apart from supporting overall domestic demand, it might be considered desirable to allow for higher capital spending for its own sake, especially since Ireland’s adjustment programme to date has relied heavily on cuts to capital spending. However, if this is the goal, it would be preferable to build the capital expenditure package directly into the overall adjustment programme.
Weighing the above considerations, as well as the importance of ensuring transparency, the Council has significant reservations regarding the appropriateness of the separate-stimulus approach under current conditions. Any policy action should be in the context of the main adjustment programme. On the substantive question of whether there should be an increase in capital spending, the Council does not believe that the total amount of Government spending set out in the fiscal stance underlying SPU 2012 should be increased without explicit revenue-raising offsets. However, recognising the difficult financing conditions in sovereign bond markets, the Council supports the exploration of financing mechanisms such as loans from the EIB and well-structured PPPs to finance capital expenditure set out in the main programme.”
It is a good start.
Personally, I would tax savings if I had to in order to provide a stimulus.
We cannot continue to contact until we reach zero.
@ Johnny Foreigner
I agree wholeheartedly not because what you suggest is likely to happen but because it underlines the radical nature of the crisis confronting the country and the need for radical solutions in terms of new thinking.
Incidentally, I am making a collection of the stock phrases currently in vogue. “Safeguarding frontline services” is my favourite of the moment.
One must thank Minister Howlin for a new definition of maintaining the status quo i.e. “driving change”. However, a score of one allowance abolished out of 800 must have struck even his cabinet colleagues as being somewhat dubious.
Sorry, off-topic, but…
“I’m not in the camp that says ‘take the money,’” Schaeuble, 69, said in an interview in Berlin today when asked about moves to press Spanish Prime Minister Mariano Rajoy’s government to request more aid. Spain “would be daft” to ask for a bailout on top of the 100 billion euros ($129 billion) for its banks if it didn’t need it, he said. ”
“In general, forecasters remain of the view that growth rates of about 3 per cent will return over a two- to three-year horizon…”
Really? 3%? That IS optimistic. Energy prices are set to rise and rise and rise. That means G*P does the opposite – yes? Lets wait until 2015. Then the FC can forcast the outcome after it occurs and they can congratulate themselves; ” We saw this coming!”
The new houshold charge should dampen ‘consumer’ spending a bit. Transport fuel at 2 euro/l litre might curtail non-essential driving to car-dependent retail locations. Watch the supermarkets. If they start a ‘price-cutting war’ amongst themselves; that’s proof we have a demand problem.
The problem is that national income is somewhat less than national expenditure and we borrow and borrow and borrow to bridge the difference. About as good a definition of insanity as comes to hand.
By the way. What in God’s Holy Earth is this guff about ‘stimulating demand’. Demand for what? Demand by whom? Its bizzare. I do not hear screeches for “supply!, supply!, supply!”. Why not? Oh! I do hear that – its our banks calling for a free money hand-out!
In the 1930s we had soup-kitchens. Now we ladel out money.
John, while valuable, these ‘figures’ (notwithstaning the professional ‘economic’ effort inivolved) remain abstractions.
Abstractions in the hands of accoutants are usually dangerous (examples too numerous to mention in recent years).
Your work needs to be followed by the ‘HOW’ of how these ‘abstractions’ may be implemented in the real world.
To this end, what is needed is yet another inter-disciplinary group (stress on the inter-disciplinary) to deal with the ‘HOW’, indentify the areas and groups, possible balances between taxation and cuts to expenditure, identify areas and groups that remain protected and somehow outside, and to come up with detailed suggestions in a critically PROGRESSIVE manner.
Expertise for this group is availble, and such work is far too important to be left solely in the hands of politicians and department heads.
@D’OD: Soup Kitchens. Yes, and most regretabbly we have the Merchant’s Quay Project. This is a obscene statistic to have to get your head around. These unfortunate people are my fellow citizens and apart from the heroic efforts of volunnteers and charitable donations they would be left on the sidewalks. Its so shameful. But our great leaders have no time (nor sufficient financial support) for such persons.
If ‘drugs’ were regulated, much of the social mayhem caused by the criminal monopolies would be eradicated within two years. We would still have the problem of addictions – its a human trait as old as our species.
But it seems quite acceptable to force ‘moral hazard’ avoidance on those who are in such a dreadful state of physical and mental ill-health, rather than on our financial folk who really need to be reined in. These latter are a real and present danger to our society. They have put so many of our fellow citizens in harm’s way. Makes you wonder real hard.
In the abstract, another €1.9 bn of cuts looks very rational
But I wonder how it will go down politically. Especially amongst the ones who bought the dream.
“In recent years, the public discussion about housing prices has focused mainly on whether the prices are inflated and on the effects of government policy. But the truth is that there is another, preliminary discussion that has not dominated the conversation: Do the decision makers in Israel – and the entire Israeli public, for that matter – really want to see a drop of 20%, 25% or 30% in housing prices?
That’s not certain. There are major economic interests that benefit from high housing prices, and there are entire economic systems based on the assumption that prices will not decline. If housing prices drop to the levels they were at two or three years ago, this could cause heavy losses in numerous areas of the economy: tax revenues, the construction and land industry, local authorities and cities – and as a result the banks and of course the buyers in recent years.
Thus, despite all the talk of the cost of living and the cost of housing, there are major forces in the economy that don’t want significant change. Talking is enough for them. And that’s why there’s a good chance we won’t see any real change in government policy in the coming years.
A drop in prices and heavy losses to the banks could cause the housing bubble to burst. But there is a chance that it will burst for another reason: One day, in another three, five or 10 years, we will wake up and discover hundreds of thousands of Israelis who are so enslaved to their mortgages that they have no chance of maintaining a reasonable standard of living and quality of life.
Then they will ask where the money is, and they’ll find out that when housing prices greatly exceed the growth rate of the economy, these increases transfer wealth from the have-nots to the haves. And that’s what is happening now.
The hundreds of thousands of Israelis who have taken out or plan to take out mortgages are transferring their future wealth to the state coffers (taxation ), to property owners (renters and sellers ), to land owners and to anyone who benefits from rising real estate prices. It is a transfer of wealth from the have-nots to the haves.
In the short term, there are mainly beneficiaries of the rising prices: the expanding state coffers, which distribute salaries and salary increases (mainly to the workers in the monopolies ); the construction materials industry; and all those who bought apartments in recent years. They’re doing great, but on the margins are the poor souls with average salaries looking at homes costing a million shekels.
But some day those margins will be huge. They will form an entire generation that has mortgaged its future. The generation that in recent years has been buying homes for unprecedented multiples of its equity and its disposal income is just like the generation now being produced by the school system, which has deteriorated in the past 30 years, and the generation of employees who do not have tenure or budgetary pensions.
It will be a lost generation. The lucky and talented ones among them will flourish professionally, and will make their payments – but many will encounter a cruel job market. And then they will realize that the decision makers and the general public betrayed them.”
The IMF hits the nail on the head. The cohort that bought into the fantasy is not going to make it.
The eventual gradual resumption of private consumption
and investment growth—now not expected until 2014—hinges on a bottoming out of house
prices, some pick up in lending to SMEs and the less indebted younger cohort of households
If there could be one thing that the country learns from this mess it would be that property booms tends toward the cancerous.
And that benighted cohort will decide what happens to the cuts.
Ho ho, Ironic that Israel property model follows Ireland while Ireland is now trying to emulate the Israeli knowledge economy. I guess it’s called convergence.
Meanwhile look out for the Smart taxes book launch:
The Fair Tax; supported by history, agreed by economists, feared by the 1% will be launched in Buswells Hotel, at 6.00pm next Tuesday the 18th of September.
Fr Sean Healy of Social Justice Ireland, a well known advocate for the vulnerable and marginalised, will describe why the information and arguments in The Fair Tax or a Site Value Tax over a conventional property tax are so vital for the people he defends.
Some of the writers, Dr Constantin Gurdgiev, Judy Osborne and Emer Ó Siochrú, will also be there to discuss their contributions to the book
Also
FAIR PROPERTY TAX ?
A public debate to be held in Trinity College Dublin on Monday the 24th September, 7.30pm Synge Theatre, Nassau St entrance.
To be chaired by John Bowman (RTE)
The audience will be invited to question a panel of economists and financial experts who support the introduction of a Site Value Tax in Ireland.
Constantin Gurdgiev, Ronan Lyons, Karl Deeter, with international speaker to be confirmed.
@Brian Woods Snr
“These latter are a real and present danger to our society.”
I’ve just discovered Dr Joseph Tainter’s “The Collapse of Complex Societies.” These latter are in danger of causing it.
DOD,
An “inter-diciplimaru” group. Ah yes, we need another unelected , unaccountable Quango to decide how to spend OPM in a non transparent fashion. I am guessing that those who pay for and use public services would not be consulted.
@Brian Wood Snr
I’ve been in favour of ‘regulation’ for many years now. Register and get your fix etc and health of this group, particularly heroin users, would also be enhanced. For other soft – register and tax it.
It woud significanty reduce the power of the gangsters over large segments of the population. Numerous senior police have also reached this conclusion. Think I read somewhere recently that global is worth 300 billion dollars of so ….
@fearaloh: “Ho ho, Ironic that Israel property model follows Ireland while Ireland is now trying to emulate the Israeli knowledge economy. I guess it’s called convergence.”
Its know as the judicious and repeated application of Skilled Incompetence to enhance and extend Succesful Failure to ever higher levels of success and failure.
Convergence:
The current Swedish government does seem to want to follow the path that the Irish governments of recent years have been taking. Luckily they don’t have a parliamentary majority and are often blocked. Some might call that a dysfunctional system 🙂
One proposed change that might happen is a lowering of the corporation tax-rate. This would be partly financed by reducing the possibilities to transfer out corporate profits to tax-havens.
Will the tax-havens respond by lowering their taxes or will they pay lobbyists in Brussels to stop it? For some reason the EU-commission has to approve this proposal….
@ BW
That is neoliberalism par excellence. Cream the money from the ignorant and when it ends in tears get the hell out with your money and let the taxpayer foot the bill. The other thing is that Israel can’t afford what happened to Ireland.
… they could alway try the nuclear optioin!
For American Scholars A MUST READ [h/t naked capitalism
Middle Class Shrinks to ALL-TIME LOW
Posted on September 14, 2012 by WashingtonsBlog
And Unemployment and Inequality Are Worse Than During the Recession
The Washington Post notes in an article entitled “Census: Middle class shrinks to an all-time low“:
The vise on the middle class tightened last year, driving down its share of the income pie as the number of Americans in poverty leveled off and the most affluent households saw their portion grow, new census data released Wednesday showed.
…
In reality, inequality in America is the worst its been since 1917. Indeed, as we noted last year:
Inequality among Americas is worse than in Egypt, Tunisia or Yemen. As NPR notes, inequality is higher in the U.S. than in many banana republics in Latin America. And social mobility is lower in America than in most European countries (and see this, this and this).
[…] recommends accelerated measures to bring our budget back into balance. There is a thread on the report on IrishEconomy.ie. This blogpost just focuses on the overall budget adjustment which is only one aspect of the Fiscal […]
‘The Government has unwisely ruled out three of the most important options available in getting the deficit down. These are increases in the rates of income tax, further reductions in rates of payment under the social welfare system and further reductions in public service pay.
…
A meaningful debt deal is within the control of European partners, while a retreat from unwise pre-election promises is up to the Government. The deal is obvious: the Government could offer to do more than it is committed to, abandoning the TUP (the Three Unwise Promises), provided the Europeans offer debt relief in amounts that will ensure a decent chance of success. ‘
Maybe some interesting messages and thoughts here for our own politicians as they think on about the forthcoming budget. This is definitely worth a look…. a short animated cartoon about getting a difficult message across to taxpayers.
45 replies on “Fiscal Advisory Council Report”
Well done to Prof John McHale and his colleagues for this courageous and (from reading so far!) considered document.
With the Fiscal Responsibility Bill published, and with Budget 2013 now hoving into view, it might be a good time for John to explain on the national stage, what role the Council is to have. Also how the Council will deal with the issue of documents in the run-up to Budget 2013 and indeed how it will react to the Budget itself.
Last year, the Government acknowledged the Council’s recommendations but ignored them. If Ireland is to have an independent fiscal council, then this year, there should be strong public focus on how the Council acts and how its recommendations and statements are interpreted by Government.
Off thread: Update – Dutch Elections
09/13/2012
Election in the Netherlands
Dutch Voters Choose Pro-European Parties
The incumbent conservative-liberal VVD party has won the Dutch election, with the center-left Labor Party coming in second. The result is a show of support for the current government’s euro-crisis policies and a rejection of euroskeptic parties, with right-wing populist Geert Wilders suffering a major defeat.
http://www.spiegel.de/international/europe/voters-choose-pro-european-parties-in-dutch-election-a-855529.html
I think the FC are correct in this assessment. We need to do more…. but where will it come from? Taxes? Cuts? Perhaps we should bring back the old window tax…. including every pane of glass in your face if you wear glasses and all of those on your house, office, car, etc. Alternatively, we could actually go through with cuts aimed at the old and infirm that they are always threatening but then doing U-turns on.
I guess it will be SW, health and education then.
I have no doubt though that the government will mouth a few platitudes (er, give it their full consideration) and then just ignore the advice (er, decide that not doing it is in the best interests of the country and that economic growth will suddenly appear out of nowhere in some new forecast to show that it’s not needed anyway).
Collapse in demand due to austerity demands more austerity. Shocking.
@Shay
You must have been reading the new car sales that came out today (down 14%).
Government advised to cut extra €1.9bn before 2016
DAN O’BRIEN, Economics Editor
The Irish Fiscal Advisory Council (IFAC) has urged the Government to be more ambitious in tackling the budget deficit over the next three years.
The new independent watchdog is tasked with overseeing the management of the public finances. In the third report since its establishment in the middle of last year, it urged the Government to add a further €1.9 billion in adjustments to the planned €8.6 billion over the 2013-15 period.
…
Sinn Féin deputy leader Mary Lou McDonald TD said the call by the Fiscal Council for the government to add an extra €1.9 billion in spending cuts and tax rises between now and 2015 was ‘reckless’ and ‘would damage the economy, further undermine vital front line public services, and hurt families’.
“The economy urgently needs more investment not more austerity. Getting people off the dole and back paying taxes is the surest route to deficit reduction. Cutting government spending and the disposable incomes of low and middle income earners will further depress the domestic economy and lead to more job losses.”
http://www.irishtimes.com/newspaper/breaking/2012/0913/breaking19.html
[Gerry Adams] said that the Government-appointed Fiscal Advisory Council should “get lost” after it proposed this morning that the Government make an additional €1.9 billion in cuts and tax hikes, over and above the already-agreed adjustments, between now and 2015.
“It is reckless what they are advocating,” he said, adding that additional cuts would have a huge impact on those already struggling to make ends meet.
http://www.irishtimes.com/newspaper/breaking/2012/0913/breaking43.html
@david od
Perhaps Gerry and Mary Lou have a cunning plan to obtain the necessary funds to act as they suggest?
Maybe they will share it with the rest of us!
Have they met Angela’s base yet?
I still need to spend more time looking at it, but first impressions are that it is an excellent piece of work. The speed of fiscal adjustment they recommend is still rather slow, but is much more responsible than the coninued crawling pace envisaged by the government.
IFAC ably highlight how poorly understood the post-bubble Irish economy is understood.
They also ably highlight how Irish government and other forecasters have regularly overestimated medium term growth prospects since the crisis hit. I think they are overly kind, however, to make fan projections based on official projections, and comment that the risks are on the downside. A fairer, but less kind, perspective would be that there has been a systematic upward bias in forecasts since 2007/8, and it is likely that bias persists.
Using a fan chart methodology, the report finds a 40% chance that the debt to GDP ratio will fail to stabilise by 2015 under the current policy framework. If there is a systematic upward bias in forecasts, this 40% must actually severely understate the risk of failure to stabilise. Just based on what’s in the report, I’m guessing the probabllity of failing to stabilise by 2015 must be more of the order of 80%.
The proposed hybrid macroeconomic measure against which debt sustainability should be judged is a valuable contribution to the debate. I hope to see it adopted by the Department of Finance and the Troika, inconvenient though that will be for them.
I just read that the advice is ‘not binding’
@grumpy
as I’ve noted on previous threads – when it comes to ‘fiscal’ the real question is ‘HOW?’ and the IFAC has noting to say on this.
I have no objection whatsoever to accelerating the adjustment but evidence to dats [disability assistants, home care, etc] is that it is rightly skewed towards the lower middle and underclass while many ‘protected interests’ remain .. er. protected. I see no evidence that this admin has the balls to take on these vested interests – if they had the €1.9 billion would be possible. I therefore tend to view Sinn Féin opposition as useful and necessary and they have consistently come up with fully costed proposals. I do not see Fianna Fail or what’s left of them to have any legitimacy in this area and quite a few of their senior members, like Mick McDowell, appear to have forgotten the concept of collective cabinet responsibility ….
When it comes to ‘Fiscal’ it is all about the ‘How?’
@David O’D,
IFAC are not silent on where the adjustment might come from.
“Given the extent of the required total adjustment, the Council again urges that all adjustment margins be kept under close review, including tax rates, public-sector pay/pensions, and welfare rates.”
Grumpy,
Based on past experience, the alternative could involve QE or a long term zero interest “loan” from a Bank. Perhaps the stockpiling of ink had a purpose.
@BCT
The Orthodox generalist statement – but no ‘specifics’.
It is a fine line that the government must walk. If you cut too much, then you will suppress consumer spending. The current (positive) 2013 GDP forecasts are based on the assumption of broadly flat consumer spending. It wouldn’t take much of a shock to sentiment to see that fall again with obvious knock-on effects to tax take and the ultimate exchequer deficit.
Cartoon of the Day
IFAC Reloaded
http://www.presseurop.eu/en/content/cartoon/2688111-dinner-time
The Council makes a very pertinent point about the credibility of growth forecasts for 2014 and 2015.
David O’Donnell also makes a pertinent point because it’s universal that insiders would give priority to targeting the disenfranchised rather than their own perks – – look no further than the public representatives, irrespective of hue.
I cited ludicrous appeals to patriotism on dispensing generic drugs in the recent past and the litany could go on.
The carnival barkers here of course have little to fear as long as Minister Brendan Howlin is marooned in the doldrums in his ‘Reform’ punt.
Economists don’t know how to measure the true rate of economic growth, because they can’t model the consumer’s perspective on technological advancement. Alex Gheg has released a new framework that can solve this problem. The hidden thoughts and feelings of people can be indirectly measured using the very accurate internal body clock, that we all have. Pleasure contracts time in the human mind, and we can see how this changes our daily circadian rhythms. See some facts and be amazed. Quantity, quality, variety and convenience in one equation. http://www.youtube.com/watch?v=u6tFLGpcOpE
Still no structural changes recommended. I’ve got one – make all the Universities independent in the morning. Government funding for select research initiatives, infrastructure and obviously student enrollment would continue – on the Government’s terms. After that it would be up to the universities to run a balanced budget. If that means firing staff or cutting pay (or indeed hiring staff and increasing pay) then so be it.
The same principle should eventually apply to hospitals but that change would have to be made less dramatically to avoid harm.
The unions will want to have national pay agreements – and maybe they’ll get them as well. Having a national pay agreement does not mean you can’t fire people you don’t need, or cut pay if you deem staff earn too much, it just means that the Universities would agree to pay a certain rate for a certain job regardless of the location. The pay rate would be linked to the job not the person.
I don’t think recommendations on structural changes are within IFAC’s mandate. It’s a *fiscal* advisory council.
On the record of economic forecasts, they are generally no more useful than the old habit of equity market strategists’ twelve month forecasts being:
Today’s index value + Approx 10% (always accompanied by plausible arguments as to why it could turn out that way). Remember Abbey Joseph Cohen at the Squid?
They were of little use, easily over-relied upon by clients, and embarrassing.
A few bear markets kind of eventually made that less habitual.
Apologies if you have already read this, last time it got an outing was in May, but IMHO, you cannot dredge this out too often:
Referencing:
http://ftalphaville.ft.com/blog/2011/07/25/633496/what-the-united-states-could-learn-from-chile/
“A thespian formerly of this parish used the rule of thumb in that analysis, a biro and an envelope to demolish Noonan’s forecasts. This is five minutes work and a bit of nouse from Gavin Kostick in April 2011. From Gavin:
“@ Eamon Moran and Grumpy
This from “The Irish Economy in Perspective June 2011 Department of Finance”
P. 33 (where there is also a nice chart)
“Following a contraction of 1% in 2010, there is now a broad consensus that the Irish economy will return to annual growth this year. While near-term prospects remain subdued on the whole – reflecting significant headwinds on the domestic front – a strong export performance is expected to translate into GDP growth of around ¾% in 2011 and 2½% in 2012 (see Chart above).
Turning to the medium term, the Irish economy is forecast to grow on average by 3% per annum over the period 2013-15.”
So 0.75%, 2.5%, 3%.
Applying yer man’s average ‘optimistic tendency’ of +0.2, +0.8, +1.5 (years 1, 2 & 3).
We get a prediction of 0.55% for 2011, 1.7% for 2012 and 1.5% for 2013
Can’t wait – must come back and check.”
What is Michael Noonan’s line going to be after the referendum is passed?”
Can the budget stretch to updating the back of Gavin’s envelope? 😉
The Fed has launched qe3. The US is over 60 months into the crisis and the economy is still reeling. Not ideal for irish growth projections.
On the record of economic forecasts, they are generally no more useful than the old habit of equity market strategists’ twelve month forecasts being:
Today’s index value + Approx 10% (always accompanied by plausible arguments as to why it could turn out that way).
They were of little use, easily over-relied upon by clients, and embarrassing to write.
A few bear markets kind of eventually made that less habitual.
Apologies if you have already read this, last time it got an outing was in May, but IMHO, you cannot dredge this out too often:
Referencing:
http://ftalphaville.ft.com/blog/2011/07/25/633496/what-the-united-states-could-learn-from-chile/
“A thespian formerly of this parish used the rule of thumb in that analysis, a biro and an envelope to demolish Noonan’s forecasts. This is five minutes work and a bit of nouse from Gavin Kostick in April 2011. From Gavin:
“@ Eamon Moran and Grumpy
This from “The Irish Economy in Perspective June 2011 Department of Finance”
P. 33 (where there is also a nice chart)
“Following a contraction of 1% in 2010, there is now a broad consensus that the Irish economy will return to annual growth this year. While near-term prospects remain subdued on the whole – reflecting significant headwinds on the domestic front – a strong export performance is expected to translate into GDP growth of around ¾% in 2011 and 2½% in 2012 (see Chart above).
Turning to the medium term, the Irish economy is forecast to grow on average by 3% per annum over the period 2013-15.”
So 0.75%, 2.5%, 3%.
Applying yer man’s average ‘optimistic tendency’ of +0.2, +0.8, +1.5 (years 1, 2 & 3).
We get a prediction of 0.55% for 2011, 1.7% for 2012 and 1.5% for 2013
Can’t wait – must come back and check.”
What is Michael Noonan’s line going to be after the referendum is passed?”
Can the budget stretch to updating the back of Gavin’s envelope? 😉
Skimming through the report, the most relevant part from my point of view was -The government’s Stimulus Programme-P49
My interpretation of the following is that a stimulus program is necessary and should be done, but within the current parameter limits.
“Apart from supporting overall domestic demand, it might be considered desirable to allow for higher capital spending for its own sake, especially since Ireland’s adjustment programme to date has relied heavily on cuts to capital spending. However, if this is the goal, it would be preferable to build the capital expenditure package directly into the overall adjustment programme.
Weighing the above considerations, as well as the importance of ensuring transparency, the Council has significant reservations regarding the appropriateness of the separate-stimulus approach under current conditions. Any policy action should be in the context of the main adjustment programme. On the substantive question of whether there should be an increase in capital spending, the Council does not believe that the total amount of Government spending set out in the fiscal stance underlying SPU 2012 should be increased without explicit revenue-raising offsets. However, recognising the difficult financing conditions in sovereign bond markets, the Council supports the exploration of financing mechanisms such as loans from the EIB and well-structured PPPs to finance capital expenditure set out in the main programme.”
It is a good start.
Personally, I would tax savings if I had to in order to provide a stimulus.
We cannot continue to contact until we reach zero.
@ Johnny Foreigner
I agree wholeheartedly not because what you suggest is likely to happen but because it underlines the radical nature of the crisis confronting the country and the need for radical solutions in terms of new thinking.
Incidentally, I am making a collection of the stock phrases currently in vogue. “Safeguarding frontline services” is my favourite of the moment.
One must thank Minister Howlin for a new definition of maintaining the status quo i.e. “driving change”. However, a score of one allowance abolished out of 800 must have struck even his cabinet colleagues as being somewhat dubious.
Sorry, off-topic, but…
“I’m not in the camp that says ‘take the money,’” Schaeuble, 69, said in an interview in Berlin today when asked about moves to press Spanish Prime Minister Mariano Rajoy’s government to request more aid. Spain “would be daft” to ask for a bailout on top of the 100 billion euros ($129 billion) for its banks if it didn’t need it, he said. ”
http://www.bloomberg.com/news/2012-09-13/schaeuble-cautions-spain-against-aid-request-in-poke-at-france.html
@ grumpy
FYI
http://economic-incentives.blogspot.ie/2012/09/enhanced-conditions-credit-line.html
“In general, forecasters remain of the view that growth rates of about 3 per cent will return over a two- to three-year horizon…”
Really? 3%? That IS optimistic. Energy prices are set to rise and rise and rise. That means G*P does the opposite – yes? Lets wait until 2015. Then the FC can forcast the outcome after it occurs and they can congratulate themselves; ” We saw this coming!”
The new houshold charge should dampen ‘consumer’ spending a bit. Transport fuel at 2 euro/l litre might curtail non-essential driving to car-dependent retail locations. Watch the supermarkets. If they start a ‘price-cutting war’ amongst themselves; that’s proof we have a demand problem.
The problem is that national income is somewhat less than national expenditure and we borrow and borrow and borrow to bridge the difference. About as good a definition of insanity as comes to hand.
By the way. What in God’s Holy Earth is this guff about ‘stimulating demand’. Demand for what? Demand by whom? Its bizzare. I do not hear screeches for “supply!, supply!, supply!”. Why not? Oh! I do hear that – its our banks calling for a free money hand-out!
In the 1930s we had soup-kitchens. Now we ladel out money.
@Brian Woods Snr
‘In the 1930s we had soup-kitchens.’
We have them in Ireland now.
And all over Europe, including … er .. Germany.
http://www.spiegel.de/international/germany/a-voice-from-the-elderly-poor-in-germany-a-855608.html
@John McHale
John, while valuable, these ‘figures’ (notwithstaning the professional ‘economic’ effort inivolved) remain abstractions.
Abstractions in the hands of accoutants are usually dangerous (examples too numerous to mention in recent years).
Your work needs to be followed by the ‘HOW’ of how these ‘abstractions’ may be implemented in the real world.
To this end, what is needed is yet another inter-disciplinary group (stress on the inter-disciplinary) to deal with the ‘HOW’, indentify the areas and groups, possible balances between taxation and cuts to expenditure, identify areas and groups that remain protected and somehow outside, and to come up with detailed suggestions in a critically PROGRESSIVE manner.
Expertise for this group is availble, and such work is far too important to be left solely in the hands of politicians and department heads.
@D’OD: Soup Kitchens. Yes, and most regretabbly we have the Merchant’s Quay Project. This is a obscene statistic to have to get your head around. These unfortunate people are my fellow citizens and apart from the heroic efforts of volunnteers and charitable donations they would be left on the sidewalks. Its so shameful. But our great leaders have no time (nor sufficient financial support) for such persons.
If ‘drugs’ were regulated, much of the social mayhem caused by the criminal monopolies would be eradicated within two years. We would still have the problem of addictions – its a human trait as old as our species.
But it seems quite acceptable to force ‘moral hazard’ avoidance on those who are in such a dreadful state of physical and mental ill-health, rather than on our financial folk who really need to be reined in. These latter are a real and present danger to our society. They have put so many of our fellow citizens in harm’s way. Makes you wonder real hard.
In the abstract, another €1.9 bn of cuts looks very rational
But I wonder how it will go down politically. Especially amongst the ones who bought the dream.
http://www.haaretz.com/business/the-silent-killer-of-israel-s-real-estate-market
“In recent years, the public discussion about housing prices has focused mainly on whether the prices are inflated and on the effects of government policy. But the truth is that there is another, preliminary discussion that has not dominated the conversation: Do the decision makers in Israel – and the entire Israeli public, for that matter – really want to see a drop of 20%, 25% or 30% in housing prices?
That’s not certain. There are major economic interests that benefit from high housing prices, and there are entire economic systems based on the assumption that prices will not decline. If housing prices drop to the levels they were at two or three years ago, this could cause heavy losses in numerous areas of the economy: tax revenues, the construction and land industry, local authorities and cities – and as a result the banks and of course the buyers in recent years.
Thus, despite all the talk of the cost of living and the cost of housing, there are major forces in the economy that don’t want significant change. Talking is enough for them. And that’s why there’s a good chance we won’t see any real change in government policy in the coming years.
A drop in prices and heavy losses to the banks could cause the housing bubble to burst. But there is a chance that it will burst for another reason: One day, in another three, five or 10 years, we will wake up and discover hundreds of thousands of Israelis who are so enslaved to their mortgages that they have no chance of maintaining a reasonable standard of living and quality of life.
Then they will ask where the money is, and they’ll find out that when housing prices greatly exceed the growth rate of the economy, these increases transfer wealth from the have-nots to the haves. And that’s what is happening now.
The hundreds of thousands of Israelis who have taken out or plan to take out mortgages are transferring their future wealth to the state coffers (taxation ), to property owners (renters and sellers ), to land owners and to anyone who benefits from rising real estate prices. It is a transfer of wealth from the have-nots to the haves.
In the short term, there are mainly beneficiaries of the rising prices: the expanding state coffers, which distribute salaries and salary increases (mainly to the workers in the monopolies ); the construction materials industry; and all those who bought apartments in recent years. They’re doing great, but on the margins are the poor souls with average salaries looking at homes costing a million shekels.
But some day those margins will be huge. They will form an entire generation that has mortgaged its future. The generation that in recent years has been buying homes for unprecedented multiples of its equity and its disposal income is just like the generation now being produced by the school system, which has deteriorated in the past 30 years, and the generation of employees who do not have tenure or budgetary pensions.
It will be a lost generation. The lucky and talented ones among them will flourish professionally, and will make their payments – but many will encounter a cruel job market. And then they will realize that the decision makers and the general public betrayed them.”
The IMF hits the nail on the head. The cohort that bought into the fantasy is not going to make it.
http://www.imf.org/external/pubs/ft/scr/2012/cr12264.pdf
The eventual gradual resumption of private consumption
and investment growth—now not expected until 2014—hinges on a bottoming out of house
prices, some pick up in lending to SMEs and the less indebted younger cohort of households
If there could be one thing that the country learns from this mess it would be that property booms tends toward the cancerous.
And that benighted cohort will decide what happens to the cuts.
Ho ho, Ironic that Israel property model follows Ireland while Ireland is now trying to emulate the Israeli knowledge economy. I guess it’s called convergence.
Meanwhile look out for the Smart taxes book launch:
The Fair Tax; supported by history, agreed by economists, feared by the 1% will be launched in Buswells Hotel, at 6.00pm next Tuesday the 18th of September.
Fr Sean Healy of Social Justice Ireland, a well known advocate for the vulnerable and marginalised, will describe why the information and arguments in The Fair Tax or a Site Value Tax over a conventional property tax are so vital for the people he defends.
Some of the writers, Dr Constantin Gurdgiev, Judy Osborne and Emer Ó Siochrú, will also be there to discuss their contributions to the book
Also
FAIR PROPERTY TAX ?
A public debate to be held in Trinity College Dublin on Monday the 24th September, 7.30pm Synge Theatre, Nassau St entrance.
To be chaired by John Bowman (RTE)
The audience will be invited to question a panel of economists and financial experts who support the introduction of a Site Value Tax in Ireland.
Constantin Gurdgiev, Ronan Lyons, Karl Deeter, with international speaker to be confirmed.
@Brian Woods Snr
“These latter are a real and present danger to our society.”
I’ve just discovered Dr Joseph Tainter’s “The Collapse of Complex Societies.” These latter are in danger of causing it.
DOD,
An “inter-diciplimaru” group. Ah yes, we need another unelected , unaccountable Quango to decide how to spend OPM in a non transparent fashion. I am guessing that those who pay for and use public services would not be consulted.
@Brian Wood Snr
I’ve been in favour of ‘regulation’ for many years now. Register and get your fix etc and health of this group, particularly heroin users, would also be enhanced. For other soft – register and tax it.
It woud significanty reduce the power of the gangsters over large segments of the population. Numerous senior police have also reached this conclusion. Think I read somewhere recently that global is worth 300 billion dollars of so ….
@fearaloh: “Ho ho, Ironic that Israel property model follows Ireland while Ireland is now trying to emulate the Israeli knowledge economy. I guess it’s called convergence.”
Its know as the judicious and repeated application of Skilled Incompetence to enhance and extend Succesful Failure to ever higher levels of success and failure.
Convergence:
The current Swedish government does seem to want to follow the path that the Irish governments of recent years have been taking. Luckily they don’t have a parliamentary majority and are often blocked. Some might call that a dysfunctional system 🙂
One proposed change that might happen is a lowering of the corporation tax-rate. This would be partly financed by reducing the possibilities to transfer out corporate profits to tax-havens.
Will the tax-havens respond by lowering their taxes or will they pay lobbyists in Brussels to stop it? For some reason the EU-commission has to approve this proposal….
@ BW
That is neoliberalism par excellence. Cream the money from the ignorant and when it ends in tears get the hell out with your money and let the taxpayer foot the bill. The other thing is that Israel can’t afford what happened to Ireland.
… they could alway try the nuclear optioin!
For American Scholars A MUST READ [h/t naked capitalism
Middle Class Shrinks to ALL-TIME LOW
Posted on September 14, 2012 by WashingtonsBlog
And Unemployment and Inequality Are Worse Than During the Recession
The Washington Post notes in an article entitled “Census: Middle class shrinks to an all-time low“:
The vise on the middle class tightened last year, driving down its share of the income pie as the number of Americans in poverty leveled off and the most affluent households saw their portion grow, new census data released Wednesday showed.
…
In reality, inequality in America is the worst its been since 1917. Indeed, as we noted last year:
Inequality among Americas is worse than in Egypt, Tunisia or Yemen. As NPR notes, inequality is higher in the U.S. than in many banana republics in Latin America. And social mobility is lower in America than in most European countries (and see this, this and this).
…
http://www.washingtonsblog.com/2012/09/middle-class-shrinks-to-all-time-low.html
@DoD
Derf’s White Middleclass Suburban Man strip is a good reflection of what is happening.
http://www.derfcity.com/cityarchive/wmcsm/wmcsm4.html
More on the US middle class
http://www.washingtonpost.com/opinions/five-myths-about-the-middle-class/2012/08/03/ae5ad584-cf58-11e1-b630-190a983a2e0d_story.html
http://lbo-news.com/2012/09/13/from-the-vault-class/
[…] recommends accelerated measures to bring our budget back into balance. There is a thread on the report on IrishEconomy.ie. This blogpost just focuses on the overall budget adjustment which is only one aspect of the Fiscal […]
Time to PUT the TUPs on the table … Colm McCarthy
http://www.independent.ie/opinion/analysis/colm-mccarthy-were-top-of-the-class-in-europe-but-may-still-fail-3230025.html
‘The Government has unwisely ruled out three of the most important options available in getting the deficit down. These are increases in the rates of income tax, further reductions in rates of payment under the social welfare system and further reductions in public service pay.
…
A meaningful debt deal is within the control of European partners, while a retreat from unwise pre-election promises is up to the Government. The deal is obvious: the Government could offer to do more than it is committed to, abandoning the TUP (the Three Unwise Promises), provided the Europeans offer debt relief in amounts that will ensure a decent chance of success. ‘
Maybe some interesting messages and thoughts here for our own politicians as they think on about the forthcoming budget. This is definitely worth a look…. a short animated cartoon about getting a difficult message across to taxpayers.
http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&discussionID=164102792&gid=3174213&trk=eml-anet_dig-b_nd-pst_ttle-cn&ut=1Qn5-l5dzOMBo1