ANALYSIS:New fiscal plan to be published next month is a radical departure for an Irish government, writes HARRY McGEEPolitical Correspondent
THERE WAS little surprise when the Minister for Finance reaffirmed the commitment to reduce the Government deficit to 3 per cent of Gross Domestic Product by 2014, despite an increase of some €16 billion in the bill to the taxpayer to cover bank losses. Nor were eyebrows raised by his admission that it would mean greater cuts in December’s budget than the earmarked €3 billion.
What did cause surprise – especially among Opposition parties – was the disclosure that a detailed fiscal plan covering the next four years (until 2014) is to be published in November.
In announcing the move, Mr Lenihan argued: “It is important that we have a credible path to show how we propose to meet this commitment.”
Accordingly, a four-year budgetary plan incorporating the annual measures will be published early next month. This move to detailed multi-annual budgetary planning represents a radical departure for an Irish government. For the first time, it will be setting out detailed budgetary plans not just for one year but for essentially a full Government term.
One political implication that arises from that is the potential anomaly of a Government, which many believe may not last another 12 months, setting out a plan for four years to which a (different) incoming Government may find itself compelled or bound to implement.
Other questions surrounding the decision arise. What was the rationale behind introducing a multi-annual fiscal plan? Was it the initiative of the Government or Brussels? What kind of detail will be included in the plan? And how is such a move going to play with the Opposition parties, who might find themselves part of an incoming government ?
Lenihan and the Taoiseach Brian Cowen have laid great store by the plan – both mentioned it several times during the course of media interviews. And the gist of comments from both the European commission and the European Central Bank (ECB) was the need for the Government to publish such a plan.
EU commissioner on economic and monetary affairs Olli Rehn said yesterday the State could meet the 3 per cent target by 2014 “on the condition that Ireland can present a convincing multi-annual fiscal policy covering 2011 to 2014. Jean Claude Trichet of the ECB mirrored those comments saying it was important that Ireland developed a multi-annual strategy.
While those comments suggest the plan might have been imposed on Government by Brussels, a Department of Finance spokesman confirmed the plan was a decision solely of the Irish Government and was not imposed by Brussels. The comments of both Rehn andTrichet were made after they had been separately briefed yesterday by telephone about the decisions by Lenihan.
While Europe undoubtedly approves, the reasons behind the four-year plan were wider. Given the current unsettled state of the market, setting indicative targets for the next budget might not be sufficient any more.
“It is clear that the State is required to demonstrate a credible pathway as to how that target can be achieved. We need to be far more concrete about what we are doing in subsequent years,” the spokesman said.
The detail will not be disclosed until early November when the plan is published. What is certain, according to Government sources, is that the plan will be comprehensive and “concrete”, including tangible targets, identifying savings, as well as potential growth areas in the economy.
It was an acknowledgment that setting a target without spelling out in great detail how it would be achieved would not suffice. “It has to be more than indicative. We need to give concrete details about how this is all brought together. It must be done in the context of a growth plan,” the spokesman said.
At the press conference yesterday, Lenihan refused to be drawn on whether or not taxes would be introduced in the next budget. However, departmental sources would not say whether any details on taxes would be included in the four-year budgetary plan.
Fine Gael spokesman Michael Noonan said the logic of the fiscal plan would give the Government no option but to spell out details about cuts and tax measures. The temporary withdrawal of the Irish sovereign from the bond markets would, he said, lead to a credit crunch, which would stymie growth. Thus, he argued, the emphasis in the four-year plan would have to fall squarely on finding new cuts, or raising taxes.
Neither Fine Gael nor Labour indicated specific objections to the Government’s plan to lay out a four-year budgetary strategy. But both parties said they would not regard themselves as obliged or bound to adhere to it.
The other political difficulty with introducing a four-year plan, according to a source in Finance, was that with upfront publication of budgetary proposals, interest groups would have ample time to mount sustained lobby campaigns against unpopular measures.
Despite the potential pitfalls, the Government insisted its overarching purpose was to impart confidence to investors and to the public that it had a concrete, realistic and credible plan to meet the 2014 targets.