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Hearing but not understanding
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2007 is a critical year in the chronology laid out by the IMF report. The Celtic Tiger Mark I had been dead since 2001 but even in 2007 there was still time to pull the game out of the fire on the property bubble Mark II version. So where was fiscal policy? Here is the 2007 budget minister’s speech, as delivered in December 2006. Housing is hardly mentioned, but taxes were still being cut. Yet in the accompanying analytical document, there is an awareness of the warning signs highlighted by the Fund – the loss of competitiveness and the role of housing in driving overall growth. But this produced no policy reaction. The 2008 budget is even stranger. Now housing is recognized as a problem, but only in the context of a philosophy that it was already self-correcting and a stamp duty tweak — which seems like such a big deal at the time — would help. Whatever became of the minister who delivered those 2 budgets?
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Back in 2008 the IMF predicted growth of 3% in the Irish economy in 2009 and the OECD predicted 4.5%. There’s more than a touch of the Johnny-come-latelys in their respective analyses of what went wrong with the Irish economy in their latest reports.
As for the Minister for Finance/current Taoiseach who introduced the Budgets for 2007 and 2008, a cursory glance at the Fine Gael and Labour Party responses to those Budgets in the Dail is even more cringeworthy. Granted, in December 2006 Richard Bruton made a stab at his then favourite theme of public service reform and value for money (which nobody in his own party was listening to any more anyway for fear it might upset that cohort of the electorate in the forthcoming general election) but the main opposition parties each demanded more action on tax and spending from the government i.e. less tax and more spending. They weren’t much better in December 2007 either, even when the writing was on the wall. And if you really want a demonstration of collective political myopia and economic insanity then all you need do is take a look at the economic policies put forward by the two main competing blocs in the 2007 general election.
Hindsight is 20:20 vision, and this applies as much to the IMF and the OECD as it does to the witterings of our own political class. I get the impression that the IMF would have been subtly encouraged by Irish officials to include the scathing criticism of Irish policy direction in 2006 & ’07 in its review to make things easier for the Department of Finance and the government in the run up to the next Budget. Not all the 4bn euro adjustment that is required for Budget 2010 can come from taxation increases, so it’s going to have to be weighted on the expenditure side. That means cuts in public services and they are going to be very painful for every sector of our society, particularly the most vulnerable, irrespective of any political rhetoric to the contrary.
Looking back to identify the policy mistakes of the past is a very useful thing to do if it helps to point the way forward. But it’s not any use at all if it is solely for the purpose of petty political point scoring. Of course we’re in for another bout of that next week with the Dail debate on the IMF report. It would be too much to expect that the standard of debate will rise above the usual blend of negative politics, posturing and ignorance that we’ve all grown accustomed to by now.