Pre-Budget Statement from IFAC Post author By Seamus Coffey Post date September 5, 2017 The Fiscal Council’s offering in advance of Budget 2018 can be read here. Categories In Uncategorized 7 Comments on Pre-Budget Statement from IFAC ← Could Ireland credibly threaten to veto an EU-UK trade deal? → The case for pessimism: out of date? 7 replies on “Pre-Budget Statement from IFAC” Might it be useful to include some comment on monetary policy. Presumably it has some effect on the economy and therefore should inform any decision on the appropriate stance of fiscal policy. We are already operating with a strong positive output gap ( according to Finance) and monetary policy is pretty loose. Also, no mention in the debt discussion of QE. Does it matter that the ECB /Central Bank owns a sizeable chunk of it?. The “rainy day fund” comes across as little more than a prudent-sounding political soundbite. Counter-cyclical devices and political whims don’t mix – at least not in a way that will influence bond pricing. Getting political buy-in to a proper counter-cyclical fund up is not helped by the fact that bond pricing is now very largely a function of central bank deliberations. They are the market. For the time being bureaucrats matter, not investors, and bureaucrats find it very difficult to show disapproval in a way that will register – they can’t just ‘sell a few’. Prime Minister Corbyn and McDonnell in the hot seat in 2018 best bet of keeping customs union on this Island. http://www.independent.co.uk/news/business/news/brexit-latest-might-not-happen-morgan-stanley-report-city-forecast-eu-economists-a7930296.html One also wonders if the FF/FG Special Purpose Vehicle to maintain power will hold in 2018. I won’t mention the financial system larceny of the late National Pension Reserve Fund …. Seamus has an op-ed on this topic in The Irish Times today: https://www.irishtimes.com/opinion/seamus-coffey-choices-have-to-be-made-on-budget-day-1.3210509 Elsewhere in the newspaper today there is an editorial “Urgent investment needed in Defence Forces” and an op-ed piece on Seamus Coffey’s own place: “State must help Cork become true second city,” illustrating how difficult it is for a government to resist the pressures. There is a risky dependence on corporation tax and in 2015 ten firms accounted for 50% of receipts. There is still slack plenty slack in the economy. The Irish employment rate in 2016 was 10% below 75% rates for Germany, Japan, Netherlands, and Sweden (76%), UK and Norway (74%) and Iceland had a rate of 87% according to the OECD. According to Eurostat in 2016 almost one in five (18.3%) of 20-34 year olds in the EU were neither in employment nor in education and training (NEETs); this corresponded to approximately 16.9m young people and the Irish ratio was 18.5% and 15.6% for males. In July there were 42,000 in the ‘Crafts and related’ on the Live Register. The Fiscal Council needs to improve its communication with the public and deal in specifics rather than general statements. Coffey writes above: “Housing output needs to increase substantially, but thought needs to be given in how to do this in a sustainable manner. At a basic level this could be overcoming the problems of just having workers with the appropriate professional and trade skills to undertake the work.” The Council said in June: “Fiscal policy may have to lean against the wind if the domestic economy begins to overheat, especially if the construction sector responds to persistent supply.” As for skills, the apprenticeship system has been struggling for years with governments reluctant to get business to pay for it. The construction employment figures are a puzzle: There were 136,000 employed in construction at end of 2016 and 15,000 housing units were completed. During the bust employment data show an average of about 100,000 employed each year despite low activity in residential, commercial and roadbuilding . In 1994, 1995, 1996 and 1997, a period when FDI (foreign direct investment) inflows were strong, resulting in demand for commercial property, while public funded civil engineering projects were relatively stable compared with rising GNP, new house completions rose from 27,000 in 1994 to 39,000 in 1997. House completions peaked at 93,000 in 2006. In 1994, 1995, 1996, 1997, direct employment in construction was at 91,500, 96,600, 100,800, and 110,400. Suggest tax cuts, rises, or maybe wage rises if that is your view and nail your colours to the mast! @MH The construction figures are interesting, but one explanation might be the increasing regulatory requirements which make new units more difficult to make than they used to be, and, to a lesser extent, renovations more difficult and expensive. This applies to safety, “quality” and planning. It is always easy to argue in favour of increased safety or quality, and difficult to argue against (any volunteers who haven’t heard of Grenfell Tower?), but this tends to skew the argument so that in effect almost automatically, more costs are added over time, and some projects become uneconomic. It is the opposite of the deflationary trends in many sectors. Few people seem to recognise the irony that the houses you refer to being built from 1994 – 1997 would be deemed so far below standard in many respects, that they would not be permitted now – yet people are prepared to buy them, often in preference to the ‘superior’ and much more expensive to make, modern equivalents. There is a problem with energy efficiency, but there probably should be more of a public debate about other elements of ‘standards’ in construction. Many competent and responsible tradesmen, architects and engineers cannot do things they believe to be sensible (and would be willing to do with their own properties) because ‘standards’ have been ruled upwards. Upwards always sounds good, but can get a little too out of reach. “Upwards always sounds good, but can get a little too out of reach.” The natures of hazard and risk being what they are, its simply impossible to regulate for the elimination of hazards (or unpleasant stuff). All that is possible is to regulate risks to an acceptable (lowish?) level. All statuatory regulations – of whatever stripe have definite, quantifiable economic costs, but uncertain, unquantifiable economic benefits. No state agency should be permitted to refuse to consider quantifiable economic costs when making regulatory decisions. Only those regulations which have quantifiable economic benefits should be permitted …. Folks perched behind air-conditioned desks have every incentive to invoke regulations which justify their continued employment. Is that a quantifiable economic benefit? As usual a well-evidenced, well-produced and well-targeted offering, but it’s really only tinkering at the edges. There are two parallel mountains of taxation and spending that receive hardly any consideration. However, that’s not the Comhairle Comhairleach’s fault; it’s statutorily required to focus on this territory at the edges. Despite clear indications of a robust economic performance, Ireland has, at 19.2%, the highest percentage in the EU of people under 60 with a very low work intensity – less than 20% of potential. Whereas governments in all advanced economies re-distribute income a larger share has to be expended in Ireland in what I describe as the Great Re-distribution to ameliorate the economic impact of this low level of participation in the economy and of pervasive and widespread rent-seeking. Any consideration leads to the usual futile chick or egg debate between those on the left and those on the right. The former will point to barriers to participation and exclsuonary practices; the latter will assert that the redistrubution is too generous and encourages participation in the informal economy rather than the formal economy. But maybe this is the way a majority of Irish people want it. Let’s suspend disbelief for as long as possible and moither about fiscal space. Comments are closed.