“The role of the Council is to independently assess, and comment publicly on, whether the Government is meeting its own stated budgetary targets and objectives. It assesses the appropriateness and soundness of the Government’s macroeconomic projections, budgetary projections and fiscal stance. The Council will also examine the extent of compliance with legislated fiscal rules.” The Irish Fiscal Advisory Council website
Yesterday, the five members of the Irish Fiscal Advisory Council – John McHale, Sebastian Barnes, Alan Barrett, Donal Donovan and Roisin O’Sullivan – should have handed in their notices of resignation. For the second year running, the Government yesterday produced an economic outlook which has again “noted” the advice and recommendations of the Council, and ignored it. We don’t need a special Council to provide economic assessments to Government and then have those assessments ignored – any Tom, Dick and Harry or Brian, Karl and Constantin can do that.
The fundamental principle behind an independent Council is to separate neutral economics from politics. At a detailed level, it’s to stop the Charlie McCreevy “if we have it, we’ll spend it” attitude or eve-of-election giveaway budgets traditionally used in this State to buy votes.
Yesterday, the Department of Finance published its pre-budget economic outlook (see above summary). It’s a week late and whilst forecasts come and go, some of the specific forecasts raised eyebrows. Just a month ago, the Central Bank of Ireland forecast 2012 real GDP at 0.5% and that the domestic economy represented by GNP contracting in 2012 by 0.4% (see forecast summary below).
Last week the European Commission issued its Autumn forecast which included 2012 GDP only and its forecast was identical to the Central Bank’s at 0.4%, the European Commission doesn’t forecast GNP (see extract below). Yesterday, the Department of Finance forecast 2012 GDP at 0.9% and real GNP to increase by 0.4%. The difference between the Central Bank’s and Department’s GNP forecast is striking.
It should be stressed that forecasts do come and go – circumstances change and unforeseen events are commonplace and even educated forecasts can be way off target. But when one forecast is at odds with another, it’s worth asking why and when one forecast is at odds with consensus forecasts, it’s negligent not to ask why. Why is the Department’s forecast of GDP in 2012 twice that of the consensus, albeit the difference is just 0.4/0.5%. But more starkly, there is little evidence from yesterday’s publication to show why the GNP forecast in particular should be so buoyant – unemployment remains at 14.8% equating to about 310,000 and the seasonally adjusted Live Register remains stubbornly at around 430,000, the last three months Exchequer Statements indicate a deterioration in our financial position which would be far worse were it not for underspending on the capital programme.
So to summarise yesterday’s Departmental forecast, 2012 is going to be better than expected but there is some downgrade to 2013 and 2014 but we are still confident of meeting the annual targets in the Memorandum of Understanding with the so-called bailout Troika. But with respect to the Irish Fiscal Advisory Council which produced its Fiscal Assessment Report in September 2012, the Department yesterday noted the recommendation by the Council to accelerate the budget adjustments from 2014 in the context of noting the risks and history of overly-positive forecasting by the Department. And the Department has, as it did in 2011, ignored the position of the Council.
The Council doesn’t produce its own estimates of GDP and GNP. It has assessed the “fiscal stance” of the Government and has sought faster budget adjustments. It has assessed the “soundness” of the Government’s projections and has concluded they are overly-positive. This is the meat of what the Council does, and the Government has ignored its assessment of its “fiscal stance” and has produced a forecast of GDP and particularly GNP growth in 2012 which is higher in the case of the former, and significantly higher in the case of the latter, than most other forecasters .
So what do we want or need a Fiscal Advisory Council for? To claim some fig leaf of politically independent economic oversight at national level? And then to ignore what the Council says?
Is this what the five members of the Council signed up for?
“But more starkly, there is little evidence from yesterday’s publication to show why the GNP forecast in particular should be so buoyant ”
GNP for the first half of 2012 is already up 2.1% on the first half of 2011.
I have to disagree with your interpretation of how a Fiscal Council works. They only have anb advisory role – only the Government has the mandate to make the decisions.
If the Government refuses the advice to cut more (are you advocating this by the way or just adamant they should resign on a point of principle?) then at least there can be no FF-based arguments later on that “no one told us any different”.
Leo Varadkar actually argued that the government were correct to ignore the council last year on TV recently. He said their forecasts have been shown to be too negative. The big difference I see between the fiscal council and the government is that the fiscal council are paying attention to the increasing level of off balance sheet debts.
They are making recommendations which try to take account of the off balance sheet debts that are growing massively and on which interest must be paid, while the government are endeavoring to ignore that off balance sheet activity and are claiming reductions in our annual deficits based on ignoring the off balance sheet activities.
Its also important to realise that the FAC are trying to argue for more austerity.
In light of the Multiplier effects that have been produced by the IMF the government may have a point in arguing further austerity would not be in the interests of the state.
@eamonn moran
we are talking about the government deliberately using wrong estimates to avoid decisions that the government agrees would or will need to be made if the correct estimates were used.
The same nonsense happened during teh election – fine gael made rosy growth projections and avoided having to tell the electorate what they would do if they didn’t come to pass.
The media didn’t and don’t call them on it – the media must in effect REFUSE TO DISCUSS any plans based on projections that are too rosy and REPEATEDLY and ONLY allow discussion on what the government will do if the consensus forecast comes true – and if the government refuses to produce such a plan the story MUST then becomes THE GOVERNMENT HAS NO PLAN.
And that is and would be a true story – and a valuable story to tell – it would demonstrate that we are being governed badly – and it would be a far better use of front pages and news broadcasts – than reporting on plans that are based on inaccurate and self serving forecasts.
As economists, the members signed up in order to maximize their own self interest utility functions.
@Christy
At the beginning of 2010 the planned adjustment for Budget 2011 was 3bn….as we appraoched Budget Day that escalated to 6bn.
At the beginning of 2011 the planned adjustment for Budget 2012 was 3.5bn…this escalated to 3.8bn.
The adjustments have changed when growth forecasts have been downgraded.
Some US info for Ireland to ponder
Figure 3. Have a look.
http://www.cbpp.org/cms/index.cfm?fa=view&id=711
I especially urge those between 30 and 40 to look closely at figure 3.
Here’s a link to a poem from a Nobel laureate about Time.
http://www.poetryfoundation.org/poem/239908
sf ca singing off and heading east on a new one-way mission.
I never had much time for the old patriotic malarky about heroes we really know little about and how bravely they fought. For me, NWL is heroic. Ireland should knight him the first Sir Dude, give Higgo something to do and an excuse to buy a new sword.
@sf ca writer safe travels,enjoyed your comments on here,happy holidays and all the best with your mission!
@SF CA writer, best wishes on your one-way mission but to borrow from the analogy in your poem, November leads inevitably to Spring, where at a certain point there is a wooden motive to sprout leaves anew.