Sir, – David McWilliams argues that the Irish Fiscal Advisory Council is hostage to old ideas and excessively focused on fiscal credibility ("Ireland must escape the clutches of old economic ideas", Opinion & Analysis, Weekend, May 29th).
In fact, the council’s assessment is based on a broad view of the fiscal stance that aims to keep the economy on a stable growth path and ensure that public services are funded in a sustainable way.
The council welcomes the much-needed massive Covid-19 policy supports that will see Government debt rise by around €34 billion.
Ultra-low interest rates have paved the way to push debt to higher levels in a sustainable way, but also actions to strengthen the public finances in earlier years. Providing challenge and rigorous assessment are at the core of the council’s work.
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In February, we hosted a major international conference on “Ensuring debt sustainability in a post-Covid world” that brought together top thinkers such as Olivier Blanchard and Philip Lane. All recognised that we may be in a new era for fiscal policy. While interest rates could remain low for a long time, the current situation is unlikely to last forever.
Low interest rates and growth create favourable debt dynamics.
However, there are limits to how far this can go: policy still needs to take into account the risk that these tailwinds may reverse. This risk is greater at higher levels of debt.
A growing economy should help to sustain improved public services and higher investment. Government investment is already set to reach historically high levels and outpace the EU average, giving a boost to housing supply.
However, the council’s concern is that the likely benefits of growth until 2025 have already been committed to increasing both current and capital spending, while there is no medium-term budgetary plan to manage pressures from climate change, pensions and changes to international corporate taxation or to implement Sláintecare.
No matter the view of economic theory, lack of transparency and poor planning create risks for the economy. – Yours, etc,
SEBASTIAN BARNES,
Chairman,
Irish Fiscal Advisory
Council,
Dublin 2.