Category: Fiscal Policy

McDonald and Cuffe on Metro North

On PrimeTime last week, Sean Barrett and Edgar Morgenroth cast severe doubt on the wisdom of Metro North. They are now joined by Frank McDonald.

Cairan Cuffe’s response starts with “[n]ow is the time to invest”. That says it all really. You can read the rest for yourself.

The Green Party is apparently still oblivious to the situation with the economy and the public finances. Cuffe wants to invest billions of euros in a project with a doubtful return. Gormley wants to spend unnecessary hundreds of millions of euros on waste disposal, despite warnings of his own EPA.  Ryan invests ESB’s money in electric cars and continues a subsidy scheme that does not deliver according to his own SEAI.

It is never wise to waste money, but now is a particularly bad time.

Dublin is badly served by public transport at present. Liberation of the bus market is the way forward.

UPDATE: Metro North got planning.

Address by Governor Patrick Honohan to Institute of Certified Public Accountants in Ireland

His speech is here.

Ireland’s Experience in the Bond Markets

Oliver Whelan of the NTMA gave a presentation on this topic to the IIEA last week. His slides are available here.

What sort of four-year plan?

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. 

Government Statement: €15 billion target

The government statement reads:

The Government has today decided that an overall adjustment of €15 billion over the next four years is warranted in order to achieve the target deficit of 3% of GDP by 2014. The key reasons for the significant increase from the figure announced in Budget 2010 are lower growth prospects both at home and abroad and higher debt interest costs.

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.

The Government realises that the expenditure adjustments and revenue raising measures that must now be introduced will have an impact on the living standards of citizens. But it is neither credible nor realistic to delay these measures. To do so would further undermine confidence in our ability to meet our obligations and responsibilities and delay a return to sustainable growth and full employment in our economy.

Our obligations are clear. We must demonstrate that we are bringing sustainability to our public finances. We must stabilise our debt to GDP ratio over the period of the Plan. And we must set out our strategy for returning our economy to growth.