The run-up to a budget always delivers a level of rhetoric, claim and counter-claim that provides great fodder for argument and great scope to lay down the law on the final answers about what is, and what ought to be. At this point, nine weeks or so before the event, there might still be time for a few questions.
Is inflation a crisis? Could it just be possible that the underlying inflation rate of 4 per cent that the Central Bank predicted for next year is not a crisis relative to the rate in the EU? Will the house fall in because of a 2 per cent differential for a year or so? Does anyone know how long the underlying rate will persist before falling, if the recommended "broadly neutral" Budget is chosen?
Will the Budget have much effect on inflation one way or another? Which economists have shown that for every €200 million (£157.5 million) in tax cuts, inflation will go up by so much per cent?
Did many people read the ESRI, the IMF and the Central Bank on this crucial point, and did those who actually read the references to "the fiscal multiplier" come away with anything other than a conclusion that the effect is hard to estimate, is within a broad range, and certainly not firm enough to derive a specific policy from?
In particular, do people realise the relevance of the ESRI's conclusion that, in order to reduce aggregate demand - by extension, only the domestic element of inflation - "substantial expenditure cuts and/or increased levels of taxation would be required"? That is, do they realise that to cut inflation, or to raise it indeed, the Budget would have to move very strongly in one direction or other (even though no-one says exactly by how much)? Do people realise why the ESRI did not quantify the likely effect on inflation of the tax cuts expected under the Programme for Prosperity and Fairness, especially as counteracting inflation was the reason for their recommendation to suspend the agreed cuts?
Did the readers of the ESRI Budget Perspectives sympathise with the economists who, when it came to recommending budget policy now, openly stated that "it is nearly as difficult ex-post to determine what fiscal stance has been as it is ex-ante to determine what it should be"? Do policymakers not ask, "what do you want us to do, therefore, and is your policy advice really driven by data if the data do not yield stronger conclusions"? Did the ESRI not say that everything depends on the view one takes of whether the Irish economy is operating within a well-established economic cycle or in a period of transition between stages of development? Is that not ultimately a fine political and economic judgment, one that is not even a left-right issue?
On the broader front, does it matter very much that we are vulnerable to an unforeseeable "external shock"? Has anyone proposed a course of action that would mean that if the US catches a cold - goes into recession due to a stock market collapse - we would also merely catch a cold rather than the flu? What policy would ensure this and would it be worth the trouble?
Does anyone know what a recession means any more? Do people who write about such things know the difference between a fall in growth from 8.5 per cent to 5.5 per cent (a decline of three percentage points) and growth of minus 3 per cent (a decline of 11.5 percentage points)?
When is a deal not a deal? How would the unions feel if the Government decided that something about the economy wasn't as good as expected and insisted that public sector wage deals and tax cuts had to be abandoned, and said they wouldn't take "no" for an answer? What would partnership mean in those circumstances?
Should workers in one company be paid for the higher productivity achieved in another company?
What should a responsible government do if the possibility of a wage-price spiral becomes real? How would the inevitable policy response of "putting on the brakes" benefit those who had driven up the wage-price spiral, and particularly those with no industrial bargaining muscle on fixed incomes such as pensioners and social welfare recipients?
Doesn't the competitiveness of the economy and the facilitation of the enterprise sector, which makes all social provision possible, matter as least as much as keeping progressive tax rates?
We can probably think of answers to all the above, given that some of them are recurring questions. Still, it's worth asking them again, to test some of the assertions and underlying assumptions made in this dramatic, pre-Budget season, and also to find the right answers.
Oliver O'Connor is contributing editor at Finance and Finance Dublin. E-mail ooconnor@indigo.ie
