ANALYSIS: A perceptive report was not always as crisply written and succinct as it could have been
THE 15-MONTH old Fiscal Advisory Council is finding its feet, if not yet its voice. The new watchdog has issued its most wide-ranging and constructive critique yet of the Government’s handling of budgetary issues, along with its assessment of the prospects and risks facing the economy.
On the latter, there is a tone of pessimism running through the council’s third report. The wise men (well, four men and a woman actually) believe there is only a 60 per cent chance that the Government’s current fiscal stance will succeed in making the public debt burden manageable by 2015. The council of dismal scientists acknowledges recent positives, including major initiatives aimed at resolving the euro crisis and the State’s gradual re-entry to the bond market over the past half year.
They have incorporated these developments into their assessments and have tweaked their advice to the Government on cuts and taxes. Six months ago, the council believed the Coalition needed to add almost €3 billion to its three-year deficit-squashing plan. Now they advise an additional €1.9 billion, with none of it to be ladled out in the forthcoming budget.
But the council members have not allowed positive developments to blind them to the bigger picture, which remains clouded in uncertainty. They highlighted yesterday repeated forecasting mistakes made since the depth of the recession in 2009. Over the past three years, public and most private economic growth forecasters have seen recovery hovering at hand. Three years on and recovery remains on the horizon. If that mirage effect continues, the public debt burden will slowly crush the economy.
The fiscal council is right to point this out, and to stress that Ireland is not going through any old recession. This slump is known in the economics jargon as a “balance sheet” recession – the result of too much debt and depressed property and other asset prices. Such recessions are the deepest and longest. As the economy continues to bump along the bottom, nobody doubts anymore that Ireland is in such a recession.
The council is less than impressed by the Government’s stimulus package unveiled in July, criticising the lack of cost/benefit analysis underpinning its projects, opining that the money could have been better used paying down debt and advising that if there are capital projects worth investing in the Government should make cuts elsewhere to fund them. The only significant impact that the package could have is to provide a confidence boost. The council did not allude to the confidence effect yesterday, probably because it doesn’t see much sign of the stimulus package unleashing animal spirits.
The frustration of council members in interpreting the mess that is the Department of Finance’s archaic accounting methods was also evident. The most they say about tax revenues so far this year is that they “appear” to be on target, while the department is admonished for its lack of transparency on how, why and when it changes its projections.
For the council to be a success in the longer term, it will have to become trusted by the public as the voice of clear and objective analysis on budgetary issues, much as its counterparts in Sweden and the Netherlands have done. It is proving its analytical capacity and sound judgment, but it has work to do on getting its message across.
As most people will not read beyond the summary of its long reports, overviews need to be clear and succinct. The summary yesterday was too technical to make it accessible to the average engaged and informed citizen. Nor were its critiques of the Government always as crisply made as they could have been.
In an effort to avoid appearing confrontational, the council sometimes went too far in couching criticisms – on occasion, the authors were so polite that careful re-reading was necessary to be sure criticisms were being made at all. When the wise group is next heard from, it might be a little blunter in its taking of the administration to task, should it find reason to do so.