Brian Keegan: Britain still has work to do to restore its economic credibility
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You’d have to go back as far as 2007, the boomiest of boom years, to find a national current account surplus which even approached the projected surplus of €16bn, as the budget figures were finalised last week. This allowed significant spending to improve the lot of the Irish average citizen dealing with inflationary pressures not seen since the 1980s.
The ministers didn’t just have fiscal space available. They had a fiscal universe all to themselves within which to perform their manoeuvres. No borrowing was required to fund the additional social welfare and direct grants. Perhaps the most striking economic announcement of the week didn’t come from the Finance and Public Expenditure and Reform ministers but from the National Treasury Management Agency. There will be no Government borrowing between now and the end of the year.
Following the great recession in 2008/2009, Irish budgetary policy suffered from an abundance of caution. Even as the economic prospects improved from 2015 onwards, we fell into a grinding narrative of nonchalance in our budgetary policy. It wasn’t that problems in our health, education, infrastructure, and housing sectors were ignored, but successive budgets did not do enough.
Since 2020, lessons have been learned about the need for intervention, and how decisive Government action on budget day can make an appreciable difference.
The insight from the pandemic was that targeted support is not largesse, but yields longer-term benefit. The Budget 2023 package is able to help in large part because the pandemic supports, which were generous and admittedly cost billions, left the post pandemic Irish economy in a better position than almost any other European economy.
There is a difference though between courage and recklessness when it comes to managing the national finances. Compare the Irish position with the position in the UK, where a mini-budget to tackle cost of living issues was presented only days before our own. The British will have to borrow to keep their people warm this winter by capping energy costs.
However, the chaos in British financial markets in recent days has not been created solely by this borrowing requirement. The concerns over how un-costed tax cuts can be sustained over the medium term led to financial market chaos. That in turn has led to the British chancellor cancelling the plan to eliminate the 45% top rate of income tax. This was a rate cut which would have benefitted relatively few high earners and was politically toxic.
The U-turn may only mean that the concerns over the British budgetary costings will be replaced by concerns over British political policies. Markets dislike uncertainty, and it remains to be seen if the decision to retain the 45% rate after all will be sufficient to restore confidence in the British government’s management of its economy. Given our close ties with the British economy in terms of trade and investment, this is also a matter of some concern.
The programme of supports in Budget 2023 has not left the Irish exchequer so drained that there cannot be more support provided to individuals and businesses in 2023 if it is needed. We still must build capacity in our health, housing and education services, and retain confidence in exchequer management as we do so.
- Brian Keegan is director of public policy at Chartered Accountants Ireland