What response? There hasn’t been one, but shouldn’t there be? Take a look at what the Council says about itself
“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 will measure 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 the (forthcoming) legislated fiscal rules. The Council will report on its findings at least three times per year.”
So last week, the Government announced Budget 2012 over two days and indeed there had been a month of publications which preceded the Budge which aimed to set out the general framework for the economy, the capital programme and the public sector.
And the response from the Council? Nada, so far.
In the UK, the equivalent of the Council is the Office for Budgetary Responsibility (OBR) which was set up in 2010. Like the Council, it is independent of Government and like the Council it comments on the outlook and direction of fiscal policy as outlined by the Government. For example, on 29th November, 2011 when the Chancellor of the Exchequer (finance minister) George Osborne issued his Autumn Statement, the OBR was making statements as soon as the Chancellor sat down having made his speech in the House of Commons.
Maybe the Council is still finding its feet; after all, it is only five months old and its role has yet to be fully set out in law in the Fiscal Responsibility Bill which was supposed to have been published by the end of 2011. Tick tock…
What might the Council have said about Budget 2012?
(1) Growth. Whilst none of us has a crystal ball and events outside Ireland effectively beyond our control may unsettle any forecast, it is a fact that the Government’s forecasts as set out at the start of November 2011 and which formed the basis of the overall scale of the adjustment in Budget 2012 are more optimistic than two recent forecasts – one by the ESRI and one by the OECD. Forecasts come and go of course, and the ESRI doesn’t have the best record. But there haven’t been any other recent forecasts of note, and the similarity between the OECD and ESRI forecasts should at least set up an authority which needs to be answered by the Government. What would the budget adjustment have needed to be if the Government adopted the ESRI adjustment? The projection on here would be €4bn+ in 2012.
(2) Debt sustainability. Whether or not Ireland is facing unsustainable debt is arguable.Italy andJapan live with similar ball-park debt levels on a GDP basis.Ireland has a debt:GDP similar to today’s in the 1980s and recovered so that by 2007 our debt:GDP was a paltry 25%. But there are many who argue that a 140% debt:GNP in a common currency, with less productivity gains to be made compared to the 1980s and with a large part of the debt attributable to saving banks, at the behest of the ECB, there are strong arguments that the debt is not sustainable. Either way, the Council should be issuing its own determination, and the effect of the Budget 2012 on that debt.
(3) Commentary on the Budget 2012 details. The Council should be commenting on the measures taken in the budget. It should be commenting on the fact that most of the tax adjustment comes from front-loading a VAT increase. It might also comment on the Department of Finance approach to the calculations which is understood to take no account of price elasticity – in other words, if a TV costs €299 now and rises to €304 in January 2012, then that should tend to depress demand for TVs. The extent to which demand is affected by price is called “elasticity” and the Department of Finance is understood to have ignored it. The Council might comment on the wisdom of cutting the capital budget whilst leaving the Croke Park Agreement untouched.
Truth be told, and assuming the economy holds up, the view on here is that there will be a need to widen the tax net, increase income taxes and cut public sector pay. The Council should be forward-looking and examining the even-more unpalatable options in Budget 2013, and that’s assuming things turn out as planned in 2012.
And speaking of out-turns, the income tax-take in November 2011 was 6% below November 2011 profile, and the Council might issue a warning about the feasibility of the estimate of the income tax in 2012 being 10% greater than 2011.
If the Council hasn’t issued a commentary by the time our missionaries arrive back in town in January 2012 for their next review, then it seems justified that the Troika be challenged on Ireland meeting its commitments in respect of having an independent fiscal council.
NAMA Wine Lake 
In defence of the Council: they are working only with publicly-available information, are uncompensated and work in addition to whatever full-time positions they have. This is directly in contrast to the OBR, which is the sort of set-up I’d love to see in Ireland. An expansion of their mandate and resources as part of the Fiscal Responsibility Bill would be very welcome but I do think we should be realistic as to what they can do right now.
“they are working only with publicly-available information, are uncompensated and work in addition to whatever full-time positions they have”
Errr. Dan, that describes most bloggers : Look at Cormac Lucey, at Nat O’Connor, at Michael Taft, at Gurdgiv, at Karl Whelan, at Seamus Coffey, at indeed our host, at a whole host of people who responded, in some detail and at some pains, from a wide variety of perspectives left right and center, on the Budget within hours.
So….
Very true, and Irish bloggers are doing some great work at the moment – our host is far more informative about NAMA than any government department and the likes of Karl Whelan have steered the debate towards the important issues like promissory notes but my point is that the IFAC are a different beast.
As they are government-funded and accountable to the Oireachtas (as is my understanding) they most likely feel that putting anything less than a comprehensive formal report would be inappropriate. It’s also much easier to put out some analysis as a lone writer than a council of five, but that’s a smaller issue.
Aren’t Angela and Nicolas enough? Why do we need part time amateurs? Is it just more window dressing when the budget is already determined in Germany?
The members of the IFAC are part-timers supported, as far as I know, by a tiny staff. Could the function of the Council not be undertaken or supported by the ESRI bearing in mind its resources and mission? Also, what about NESC given its role of advising the Taoiseach (aka Government) on strategic issues for Ireland’s economic and social development.
I cannot understand the budget strategy which IMHO will kill off any prospects of recovery unless there is a miraculous economic recovery. I said in an Irish Times letter the other week:
“If all the low hanging fruit has been picked, as Minister for Finance has claimed on numerous occasions, why doesn’t the Government lift its head and start plucking the ripe and plump fruit off the higher branches? For example, introduce a third tax band for salaries above €100,000, apply a salary limit of €150,000 across the entire public sector and limit pensions in sector to half that. Given that the country is effectively bankrupt, force majeure should take precedence over legitimate expectations or entitlements.Such measures are obvious and would much fairer than simply increasing the VAT rate, introducing stealth taxes and cutting essential services and capital expenditure while simultaneously increasing borrowings and paying interest simply to allow those at the top of the tree to over-ripen. The Minister could also make substantial saving by cutting off dead branches and pruning back excesses lower down the tree without impacting on basic services.”
The Minister clearly ignored my advice!
@Brian, The reason why they don’t do it is because those with the ability to earn over €150,000 per annum will move to a more benign tax climate. Money and talent is far more mobile than it used to be.
Agree about talent and mobility but there are very many well-paid people here who would not be very mobile and might not be overly talented. Sure, some could become tax exiles but the Government could make this very, very difficult – sever all social, family and business links with the ould sod, sell all business interests, require five-year transition and so on – as is being considered/done in the UK. I recall reading that the IR rejected an application from a tax exile simply because he still had a golf club membership in the UK. AFAIK, the IR is in discussions about a radical tightening and formalisation of rules on treatment of tax exiles. This all puts the Irish kid glove treatment of tax exiles in perspective.
€150k is a lot of bread to earn in a new country where you may not speak the lingo or have the connections.
None of this would prevent talented, mobile people entering the country as they could be paid here on a remittance basis – as applied a few years ago.
See http://blogs.telegraph.co.uk/finance/ianmcowie/100010602/treasury-to-clamp-down-on-tax-exiles-and-non-doms/
and
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=awahZj_qyZDs
Just to add, I’m not sure that very many of our senior civil servants, doctors, university people, lawyers, medical consultants, politicians, managers in non-traded sectors etc. would find it quite so easy to earn as much abroad as they do in Ireland where they have had the benefits of benchmarking, weak competition enforcenment and cosy arrangements.
Just a note on your last point, table 5 of the economic and fiscal outlook includes a figure for the impact on tax revenue that all new budget measures will have (-€775m). Based on the pre-Budget tax estimates and post budget estimates the impact on VAT take for all measures in budget was -€324m meaning VAT was only up €235m on pre budget estimate. This is on whole budget not the impact VAT has on VAT but I’m sure next year’s TSG papers will show the calculation. While not a critical point to your argument I just thought I’d point out.
@Brian, Who would want to live in the country you describe? It sounds more like Rikers Island to me than a democratic emerald green paradise! Let’s face it, we’re nothing more than a subservient Franco-German serfdom servicing debt for the euro banking system. Sounds like you would like more of the same?
@Japdip
Many thanks for your continued interest. I’m afraid the fiscal council is not well set up for instant analysis. As you know, we are a part time/volunteer body, with two members based on the US, one in France, and two in Ireland. Each member holds strong views and it takes a fair amount of deliberation and persuasion before we reach a consensus. At least for the moment, this means that we find it best to limit our formal assessments to our Fiscal Assessment Reports and Oireachtas committee appearances. As our views as a council become better established, and we develop the set of models we use for the assessment, I hope we can provide more frequent analyses. We are also currently working on our input into the Fiscal Responsbility Bill, which we intend to publish as early in the New Year as possible.
@John, many thanks for that.
I, and many others, are impressed at your willingness to engage in the ongoing debates, particularly in light of your official role.
The points made by yourself and others are well-made, and it is to be hoped that you keep your independence and get the support you need to discharge your anticipated role.
It would be very helpful, in due course, to get the Fiscal Advisory Council’s view of Budget 2012 and the framework and announcements which preceded it.
There are generational opportunities here to change the face of Irish political economics.
@john McHale, John, in view of the fact that the fiscal rules are now made in Germany, the FIAC is as much use as teats on a bull. …. Another quango or more colloquially, a toothless tiger. What function do YOU think it fulfills? Because I don’t believe it has one and that is borne out by the fact that in the midst of the country’s worst ever fiscal upheaval, the silence from the FIAC is deafening. Have you anything that’s worthwhile sharing with the Irish citizenship?
For me at this point the issue is not toothless tigers and useless quangos, but discredited expertise.
Its been a few years now and the fumbling in the dark has become habit, expectations of reasoned argument have become lower. (bar NWL)
I spent many years crunching data of another sort. It never lies.
I think some of our experts need to wake up and crunch some data, to look at some numbers, for a long long time.
The answer is there, and only there.
It was never anywhere else and never will be.
The great thing about the numbers is that they are the same numbers the Germans are looking at. No amount of BS can change that.
Even the simple stuff tells an obvious tale…..GDP, unemployment, mortgage arrears,bailout interest cost,deficit……
Ireland, please get a grip, change tack and start again.
You cannot go from the data you have to the data you want without radical change.
@sf on my way.. French laundry … Arguably greatest restaurant in the world … Be Irish pay cash .,,