To be fair, they won’t have much choice in the matter. If Ireland keeps spending money like a drunken sailor, then sooner or later, Brussels will step in and tell them that they have to stop, for the sake of the wider eurozone. That might suit Irish politicians just fine, though, since they’ll be able to blame foreigners for the cuts:
Senior Government ministers are understood to have reached agreement on the summer economic statement, which is now due to be approved by a special Cabinet meeting this afternoon….
…. However, sources say that agreement has now been reached and a Cabinet meeting has been set for 4.30pm. It is expected the statement will be published on Thursday.
The Irish Times understands the compromise will see a big increase in capital funding for housing, set to be announced in a new policy plan next week, but also a firm commitment to cut the deficit in the coming years.
On one level, you might wonder why they would even bother planning to cut the deficit in the coming years. Cutting the deficit means either increasing taxation, or cutting back on spending. Irish voters are not famed for their tolerance for either. Any deficit reduction, however necessary, will be framed by Sinn Fein and the left as an attack on ordinary working people, and the return of austerity. The cynic in me wonders whether the Government would not simply be wiser, politically, to keep spending, and hope that Sinn Fein wins the next election regardless. Leave them with the mess.
Civic duty, though, probably precludes that. The consequences of a financial crisis and the markets losing confidence in Ireland’s already shifty-looking balance sheet would not simply impact the Government. It would have a catastrophic impact on Irish employers and businesses – the people on the hook to ultimately pay for all of this.
The hope in Government will be that a post-Covid economic bounce will soon arrive, which will see Government revenues rise naturally. If it comes, then they can hold spending levels tight, and hope that natural economic forces close the deficit for them, without them having had to make any major decisions themselves. The problem with that plan, though, is that Government policy on Covid is making it harder and harder for any post-covid boom to arrive. The longer the economy is artificially depressed, the longer the deficit will endure.
Make no mistake: Ireland is in a very poor financial condition. The state owes €48,000 for every man, woman, and child in the country, and a total bill right now (it will be higher at the end of this year) of €241.6 billion. Last year, the Government spent more than 20 billion euros more than it collected in taxes. The figures will be similar for this year. By way of contrast, the average debt per person across the eurozone is just €29,000. Ireland is heading towards being twice as indebted as the average eurozone country. The Germans will be looking at us, in short order, and wondering if we have learned anything at all. The answer, my German friends, is “no”. Not a thing.
The problem for Government, of course, is that it takes money to do just about anything, and these people have promised to do a lot. The climate change plan alone is slated to cost billions. The health service requires yet more money. The housing system…. Well, you get the drift. And the truth is that without either dramatic tax increases, or cuts elsewhere, we just don’t have the money. Politicians have to pretend that we do, because a political party which says “we can’t afford this” simply won’t get elected in Ireland. They all have to pretend that there is a magical solution to the problem. There is not.
Cuts, or tax rises. That is the choice. It is a choice the Government has decided to postpone for a while longer, but it is a choice that they – or their successors – will soon have to make. The only question is who they will blame for it, instead of taking the blame – as they should – themselves.