By Cormac Lucey
The latest IMF report on the Irish economy passed by with little remark. That reflects an economy back on its own two feet and no longer dependent on external support.
Nonetheless, the Washington DC-based organisation argues that the key policy challenge is to harness Ireland’s strong economic momentum to avoid a new boom-bust cycle, and to bolster the economy’s resilience to adverse risks, such as a hard Brexit, an international recession or a resumption of the eurozone crisis.
It argues that fiscal policy should become countercyclical, by spending less and taxing more. We should broaden our tax base. Additional revenues could be generated by gradually aligning the property tax bases with market values and increasing the excise rate on diesel. Both measures make sense. The IMF argues for a streamlining of our value-added tax structure by eliminating exemptions and preferential rates such as those in the hospitality and services sectors. Anything that simplifies our system also makes sense.
We should aim to maintain “moderate expenditure growth while improving its quality and efficiency”. It points to the ongoing spending review as “a good step towards more efficiency” but argues that more could be done by introducing specific objectives, including in healthcare.
This is a cop-out. Up until the end of April, gross government expenditure was running 7% ahead of last year’s level. There is simply no justification for such spending growth at this late stage of the economic cycle when falling unemployment should be reducing spending pressures.
Fine Gael sharply criticised Charlie McCreevy for saying, as finance minister 17 years ago: “When I have it, I spend it.” Yet the party is taking the exact same course of action today.
Published in The Sunday Times (Ireland edition)
May 27th 2018