The Labour Party is the first of the political parties to make clear its position on what looks set to be the key economic issue of the coming election. The party has come down on the side of prudent borrowing rather than higher taxes to fund the investment in the health service and infrastructure that all parties agree is necessary.
Labour deserves credit for making its position clear and putting forward costed spending measures. Similarly they have published an analysis of the impact on the national finances of the €12 billion in debt they would raise over the five years of the next Government. This has allowed them argue that the limited borrowing they have in mind is prudent and economically responsible.
Assuming the economy grows at between 5 and 6 per cent a year for the next five years, the national debt, as a proportion of Gross Domestic Product, will remain static. But if there is a lesson to be learnt from the economic turmoil of last year is that such assumptions are inherently risky. Labour has also pledged that the borrowed money will be used for investment and not on day-to-day spending. Such an undertaking would be more persuasive if it travelled in the company of details about how Labour will ensure that every Euro borrowed is properly spent.
What is also lacking from the document published by Labour yesterday is a full explanation of why they have decided borrowing is preferable to higher taxes. Yesterday also saw the publication by the OECD of data on the tax burden borne by workers in its 30 member states. The effective tax rates in the Republic are now amongst the lowest of the European countries whose infrastructure and health services Labour so envies. On the face of it tax rates in the Republic could rise without damaging the economy.
It is clear that Labour's decision to go down the borrowing route owes something to political pragmatism as well as economic argument. If Labour is to enter Government after the election it will only be as the member of a coalition. It is not unreasonable for Mr Quinn to conclude that his prospective partners will find a economic policy based around responsible borrowing more palatable than one that requires tax hikes. We will learn more as the other parties start to show their hands. It will be particularly interesting to establish where Fianna Fáil stands on the issue as it has been equivocal to date. Hopefully the Labour proposal will stimulate a constructive debate. This would be greatly facilitated if the other parties were to follow Labour's lead when it comes to costing proposals and outlining their economic ramifications.