Dublin Opinion

Did everyone catch Michael Taft on Prime Time last night? It was a discussion about whether the Government should remain committed to the capital projects in the National Development Plan, but essentially it was a ‘cut-and-tax-our-way-out-of-the-recession’ argument against the ‘we-need-a-stimulus-to-aid-recovery’ argument. Its still available here if you want a look. Michael made many excellent points which would be familiar to anyone who reads his Recession Diaries, but the one I missed but which was very well put was about drinking water. As James says in a comment in his most recent blog post:

I particularly liked your suggestion that Multinational Corporations are going to find it a bit odd when they set up here and are told to boil their drinking water…

So it’s nice to see the other side of the argument being made for once, and to see that perhaps bloggers might be able to influence opinion – although I believe Prime Time contacted the Unite union, Michael’s employer, to get someone to put across the pro-stimulus argument.

But on bloggers having an influence, I noticed something in the Irish Times today that I thought I had read somewhere a couple of days ago:

THE GOVERNMENT should not be fixated with adhering to its undertaking to keep borrowing within 9.5 per cent of Gross Domestic Product (GDP) in the Budget on April 7th, the new economic adviser to the Minister for Finance, Dr Alan Ahearne, said last night.

Of course, the European Commission is saying it should be 9.5 – but is that not based on what the government said it could meet?

So first the advisor and then the naked man holding his y-fronts:

Taoiseach Brian Cowen has hinted the Government may have to go beyond its target of limiting borrowing to 9.5 per cent of GDP this year due to worsening financial circumstances.

Mr Cowen told the Dáil this morning the Government would seek to be “as close as possible” to the target.

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Why I thought I read this already was because the suggestion was also made by Karl Whelan on Irish Economy on the 23rd of March.

However, having thought about this a bit, I’d be inclined now to argue that there probably has been so much slippage already this year that sticking to a 9.5% target for the calendar year 2009 may not be a good idea. My impression now is that the implementation gaps in getting the changes in the April 7 budget made effective will mean that we will only see about half of the budgetary improvement that these measures would bring in a full calendar year. So, for instance, suppose that without adjustments the deficit is likely to be 13.5% for 2009. In that case, getting to 9.5% for the year would require 8 full percentage points of full-year-equivalent adjustments.

A better strategy would be to make adjustments that leave the government running an effective deficit in the second half of the year of 9.5%, and so facing into the 2010 budget in exactly the position that they had promised to be in. In the example of a no-adjustments deficit of 13.5%, this would amount to running a deficit for 2009 of 11.5%, which could be interpreted as 13.5% for the first half of the year and 9.5% for the second half.

Which seems to be the thinking in Government circles, despite poor John Gormley sticking strictly to the 9.5 script. I imagine he’ll get a rewrite.

So the orthodox economists think we need to reduce the deficit without addressing the problem that is increasing the deficit the most – increasing unemployment.

Alan Ahearn also told the awed FF TDs and Senators (they admired the ‘quality and clarity’ of his presentation, apparently) that:

Ireland could not afford a stimulus package and that its main objective should be to address the serious structural deficits – as opposed to cyclical deficits.

This point was made a number of times by Miriam O’Callaghan to Michael last night – it seemed to be the only thing she could think to ask. He provided a solid rebuttal.

The government is still able to borrow. The National Treasury Management Agency successfully sold bonds today (Tuesday 24th of March). The money is there.