Fianna Fáil is planning to bring back big borrowing but hopes that thebureaucrats in Brussels won't spot it, writesJohn McManus
Fianna Fáil will return to borrowing. The full details will be unveiled today, but yesterday the outgoing Finance Minister made it clear that some €10 billion will be borrowed over the life of the next administration if Fianna Fáil has its way.
The ever-resourceful Mr McCreevy has, however, come up with an innovative way of keeping as much of the debt as possible off the government books.
He said yesterday he hoped that half the money could be borrowed in a way that it does not count as debt as far as the all-important set of books he sends to Europe every year is concerned.
The real beauty of the scheme is that none of the money will count as Exchequer borrowings, which will make it easier to balance the books he produces for domestic consumption on Budget day. We will hear more today about what further innovations he has planned in that department.
At the heart of the Fianna Fáil plan is a new government agency to be called the National Development Finance Agency (NDFA). It will be charged with trying to find the "optimal" way to finance projects already envisioned under the National Development Plan.
It will advise bodies charged with implementing the plan - such as the National Roads Authority - on options ranging from straight borrowing to handing whole projects over to the private sector.
Some €2 billion worth of projects will be dealt with every year. In some situations the NDFA may decide that straight borrowing is the most effective method and will then issue debt. Because the debt is issued by the NDFA, rather than the Exchequer, it does not count as borrowing when balancing the Exchequer books for domestic purposes.
As far as Europe is concerned, the nature of the finance put in place and the type of project are crucial in determining whether it is government debt. If it is debt then it counts towards the all-important general government surplus or deficit, by which Brussels judges the economic performance of member-states.
For example, if NDFA loans are linked to projects with a definite source of non-government income - such as a toll road - they are not considered debt. However, a similar project directly funded by government does count.
The objective of the NDFA, according to Mr McCreevy, is to find the optimal way of getting the job done. He says the scheme is not specifically designed to minimise the impact on the government books. He expected about half the projects to slip through the net as far as Europe will be concerned.
The upshot, according to the Taoiseach, will be that a Fianna Fáil government will be able to hold down taxes, spend €4.5 billion on health, increase government spending to 8 per cent a year and keep Europe happy.
Without the €1 billion a year or so in debt which will be kept off the government books this would not be possible. It is a neat trick and there are good arguments for employing it. Under the terms of the Stability and Growth Pact which underpins the single currency, the general government deficit cannot exceed 3 per cent of Gross Domestic Product, and should be kept at close to balance. Failure to do so exposes Ireland to fines and the loss of our new- found reputation for fiscal competence. This has implications for the wider economy through borrowing costs, inward investment, etc.
The argument against what Fianna Fáil has in mind is that it is only an accounting trick and actually obscures what is going on in the economy. Europe may not consider the money debt, but it is still borrowed money that has to be repaid. Whether you borrow money by credit card or mortgage, the impact on your pocket of making the repayments is much the same, so the argument goes.