The coalition framework document produced by Fine Gael and Fianna Fáil looks more like a blank cheque designed to entice the smaller Dáil parties into their embrace than a realistic proposal for government. The trouble about blank cheques is that they can create delusions of unlimited spending power to foster unrealistic aspirations.
The framers of the document say they have been purposely vague in order to allow the smaller parties have a genuine input into any agreed programme for government but what they have done is to signal a willingness to indulge fantasy economics which they strenuously opposed during the recent election campaign.
The document promises far greater spending by the State across a whole range of areas particularly in health and housing. There are certainly good arguments for the allocation of more resources to these areas but the document offers no ideas about where the money for all that extra spending is going to come from.
In fact it rules out increases in income tax or the universal social charge (USC) as well as any cuts in welfare. That leaves borrowing as the only way to finance the massive long-term increase in State spending which is clearly envisaged in the document. One way or another the Government will have to borrow enormous amounts to pay for the Covid-19 crisis so adding to the debt burden for day-to-day expenditure into the future is a recipe for disaster.
It seems as if the Fine Gael and Fianna Fáil negotiators have forgotten all the irresponsible borrowing of the past that plunged the country into a deep economic depression in the 1980s, never mind the sacrifices that were necessary to regain our economic sovereignty after the EU-International Monetary Fund bailout of 2010.
Uncosted sweeteners
The political thinking behind the document is clear enough. Massive public spending increases and greater State involvement in the economy have clear attractions for the smaller left-wing parties being courted by the big two. The commitment to allocate resources to a new green deal is clearly aimed at the Greens, a national living wage is directed at Labour while speeding up the Sláintecare plan for a one-tier health system is an ambition of the Social Democrats.
The political logic of such uncosted sweeteners may be just as faulty as the economic logic. While there are clear attractions for all of the smaller parties in the adoption of their pet projects, past experience has shown the leaders of all three that financial constraints have a habit of upsetting even the best-laid plans. That should give them pause for thought about the chances of half-baked ones coming to fruition.
Honesty about the financial implications of the Covid-19 emergency would have been appropriate in the document
The new Labour Party leader, Alan Kelly, hit the nail on the head when he described the plan as uncosted and purely aspirational with no mention of any timelines or when the mooted ideas would be delivered. Kelly from his time in government knows that implementing firm commitments is difficult enough, never mind worthy but uncosted aspirations.
The smaller parties also know that whatever they agree in a programme for government will be subject to EU fiscal rules. While borrowing restraints have been relaxed to deal with the Covid-19 crisis, and special funds will be made available to countries hardest hit, in the longer term normal rules will apply. Ireland will be watched with particular interest because of our profligate history.
Caution and suspicion
All of the smaller parties have been cautious, not to say suspicious, in their initial reaction to the framework document and it is hard to blame them. Some members of the Fine Gael and Fianna Fáil parliamentary parties have also voiced concern about how the pledges not to increase income tax or USC can be squared with the policy pledges in the document.
Former deputy director of the International Monetary Fund Donal Donovan, who was one of the most astute commentators during the financial crisis of a decade ago, pointed out in The Irish Times last weekend that the bill for Covid-19 would have to be paid at some stage and he warned that over time some difficult and probably painful economic and financial adjustments would be needed.
A great deal more honesty about the nature of the choices that will have to be made to deal with the financial implications of the Covid-19 emergency, never mind permanently increased State expenditure, would have been appropriate in the framework document.
Honesty might well have scared off the smaller parties from getting involved in government but that would have been preferable to indulging the notion promoted by opposition parties in February that a money tree to fund every desirable social good can be conjured up out of thin air.
Fine Gael and Fianna Fáil had a chance in the framework document to educate the public about the choices that will have to be faced in the coming months if the country is to exit the health emergency in reasonable shape. Instead they have produced a document that resembles the manifesto of an opposition party that doesn’t expect to have the responsibility for government any time soon.