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Keeping the dial pushed rightwards September 30, 2014

Posted by WorldbyStorm in Economy.
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A most telling piece in the SBP this weekend about the Irish Fiscal Advisory Council and how its chair, John McHale has suggested that “If I found I wasn’t having an effect, I would consider my position.” The SBP itself notes that in the four years since the establishment of IFAC its recommendation has been implemented once and in three other instances the government has taken a somewhat different line. It’s also worth noting that IFAC has been resolutely conservative in its advice, seeking greater ‘fiscal discipline’ at all times.

But:

…members of the council admit that the government will hit the official deficit target of 3 per cent of GDP with a neutral budget, last week they warned that “compliance with the official targets does not mean that the overriding task of repairing the public finances has been accomplished”.

Which makes me wonder whether its not the very idea that IFAC’s advice has to be taken for it to be functioning properly. Advice, after all, is not proscriptive. And IFAC’s view is a very specific one which need not – by dint of its nature – take into account other factors, such as whether politically as well as economically a measure is implementable.

Indeed one could argue, and no doubt this is the line from the government that if the 3 per cent official target is being met then all is – reasonably – well, from the perspective of the financial direction of the state. Which also makes the following intriguing:

In an interview with The Sunday Business Post, McHale outlined his concerns about pressures distracting the government from making the necessary adjustments.
“Political pressures are pushing towards a relaxation of fiscal discipline. There’s pressures from interest groups and the political cycle, and it’s striking how quickly they’ve arisen.”

But again, there’s been no real relaxation. IFAC wants more, but it cannot deny that the framework already established is being adhered to.

And that I think points up a key aspect of this. If the government were to deviate from the official targets then it seems reasonable to suggest that were IFAC to issue a warning over same it would be entirely valid – in the context of the orthodoxy. That, in a sense, is when its core purpose as a ‘watchdog’ comes into operation. But for the government to keep to the 3 per cent target even if IFAC advises more is not, as such, problematic.

But in case all this sounds like an apologia for the status quo let me be clear. IFAC seems to me to be of one mind in pushing the dial in a certain direction, that is more rather than less ‘austerity’ and its public pronouncements are of a piece with this. That in itself can serve a useful function by keeping the terrain upon which the debate is shaped tilting in a certain way. And that – whatever the nature of IFAC itself or its stated goals – serves a purpose.

Comments»

1. 6to5against - September 30, 2014

The calls from various groups to maintain the 2bn cut reveal the real politics here: cut public provision of servies.

The only logic on which the cuts were initially proposed was to bring the deficit under 3%. Leave aside for the moment that this was being done with extraordinary haste: ignore the fact that this was being done regardless of its negative effects on the economy and on unemployment: forget about the fact that in focussing exclusively on a budget deficit, we were ignoring the problems which had led to a collapse in the first instance. The stated aim was to reduce the deficit to 3%.

The cuts were predicated on that basis, and it was made clear that if the deficit turned out higher than targeted in any one year, the cuts would be increased accordingly, and this actually happened in the first few austerity budgets: the percentage target was considered central, not the proposed cut that aimed to reach that target. So on what possible logic can we argue that we should go with the 2bn cut, even if it is not required to reach a 3% target.

I find it notable that the fiscal council and other bodies calling for the 2bn cut aren’t even attempting to make a case for doing so. the fiscal council seems to be mumbling something about not ‘relaxing’ too soon, but where is the relaxation if the target is being met? How can they not even be challenged to answer this question?

To make matters worse, there was some guff from the fiscal council about reducing spending, in order to avoid a repitition of the cycle of boom and bust. For this to make sense, one would have to believe that we are now living in boom times, and that the lack of cuts in a neutral budget (water charges neatly laid aside) amounts to an increase in spending. This is logic so far up its own arse as to be devouring itself, and yet it is presented as reasoned argument.

It would almost be depressing if you let yourself care.

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WorldbyStorm - September 30, 2014

Fantastic analysis, a post in its own right 6to5against.

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2. 6to5against - October 1, 2014

cheers, wbs. Its nice to be appreciated!

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WorldbyStorm - October 2, 2014

Actually would you mind if I did post it up?

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3. 6to5against - October 2, 2014

not at all.

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4. plate inches white - November 10, 2014

This site was… how do I say it? Relevant!! Finally I’ve found something which helped me.
Kudos!

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