Business ETC uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Click here to find out more »
Dublin: 12 °C Saturday 25 October, 2014

Opinion: Enda — don’t blow the recovery on a PR stunt

Giving tax cuts in the upcoming budget would be popular, but it’s not the right thing to do.

Paul Allen

WE HAVE LIVED in an economic war zone ever since our economy imploded in 2008. Now there seems to be light at the end of the tunnel of hardship we have had to endure. The tough measures undertaken to revive our economy have won us back our international credibility.

We have managed to exit the bailout programme and return to the bond market. And at the beginning of the month our credit rating was increased to A- by Standard & Poor’s, on the expectation that the Irish economy will grow faster than predicted over the next two years.

Over the past six years the Government has dished out tough budgetary measures to make this happen. Now, with one eye on public opinion and the other on the rise of Sinn Fein, the Fine Gael and Labour coalition seems as if it is gearing up to prematurely loosen the purse strings.

“Leeway” for tax cuts

Public Expenditure Minister Brendan Howlin has quickly jumped on the bandwagon, being steered by Minister of Finance Michael Noonan, saying there is “leeway” for tax cuts, despite a strong warning from the Irish Fiscal Advisory Council that the Government should stick to its package of €2bn worth of savings.

His stance is no doubt directly informed by the thrashing his party got in the local and European elections. But to throw all the hard work achieved over the past six years just to dish out tax cuts to appease public anger towards austerity could prove a disastrous mistake. This is because while the Irish economy is performing well there are many uncertainties ahead.

We are still weighed down by high levels of personal debt, but the elephant in the room is the performance of the European economy. Spain, Italy and France have major question marks over their ability to shake free from recession and any crisis in one of these three huge economies could prove disastrous for the Eurozone.

Just think of the impact the tiny economies of Ireland, Greece and Portugal had on the EU, and imagine the fallout from the downfall of one of Europe’s top economies. Ireland, as a small open economy, would likely feel this much more than many other Eurozone countries.

Meeting the deficit target

If the Irish economy hits any economic potholes over the next 12 months after the Government has dished out tax cuts to the masses, we could miss our deficit target for next year undermining international confidence in the economy and ensuring extra years of austerity in order to quickly snap our finances back in line.

This Government has had to make hard choices, but the result has been an economy that is a leading light in terms of its effectiveness in turning itself around. To try and gamble now would be foolhardy given that another year or two of tight control will all but guarantee a smooth and final exit from austerity.

Avoiding tax cuts in this budget will not be popular, but it will be right. Governments who try to woo votes by doing what the public wants often end in disaster. When Fianna Fail were in power and the Celtic Tiger was reaching boiling point, the right thing to do would have been to raise taxes and slash spending to try to cool the economy. But that would have proved disastrous for their performance in the upcoming general election in 2007. So Fianna Fail gave the people what they wanted — low taxation and high levels of spending — and they sailed back into power just before the economy went belly up.

The current Government, with more time at hand before the next general election, should remember the lesson Fianna Fail learned the hard way and the words of Joss Whedon — “Don’t give people what they want, give them what they need”.

Paul Allen is managing director of Paul Allen and Associates PR. Follow his blog.

VIDEO: Alex White on how austerity affects him and whether Joan Burton hurt his feelings

  • Share on Facebook
  • Email this article
  •  

Read next:

Comments (85 Comments)

Add New Comment