Cormac Lucey: Inconvenient truths and careful planning cast aside in this Covid-19 game show (2024)

The effect of the coronavirus pandemic on our national finances will be staggering. The Department of Finance expects tax revenues to fall by nearly €10bn to €49.6bn this year. Meanwhile, current spending is expected to jump by €10bn to €70bn, as the government boosts welfare supports by €4.5bn and expenditure on health by €2bn.

According to Davy, the government deficit is expected to rise to €23bn in 2020, more than 11% of modified gross national income (GNI*) before falling back to €14bn in 2021, or 6% of GNI*, in 2021. This means Ireland’s debt to GNI* ratio will rise this year from 99% to 125%, before falling back slightly in 2021. This is the budgetary backdrop against which government formation talks are taking place. It has been only 85 days since the general election. No rush, lads.

With the public finances under greater pressure than at any time since 1990 — if we set aside for a moment the crash of 2008 — there is no appointed chairman of the Irish Fiscal Advisory Council (Ifac). The term of office of Seamus Coffey ended on December 31. In my opinion, Coffey did an outstanding job, even if I was critical — at times erroneously.

The failure of a Fine Gael finance minister with a master’s degree in economics to appoint a successor illustrates the shamelessness of our political class and underscores my low opinion of Paschal Donohoe. It says everything you need to know about the Irish political class’s relationship with fiscal discipline.

The verbosely titled “draft document between Fianna Fail and Fine Gael to facilitate negotiations with other parties on a plan to recover, rebuild and renew Ireland after the Covid-19 emergency” suggests the two parties have been pushing and shoving for a long time, with little to show for their exertions.

The title gives a foreboding hint of the logorrhoea to be found inside. Consider some of the document’s first words. “Many families have lost loved ones; many more have been affected by illness; and hundreds of thousands of people have either lost their jobs or had their employment thrown into jeopardy.” This is true, and tragically so for those bereaved, yet it is not offering great insight into the politcal path ahead.

The document goes on to assert that “our state and people have reacted with unity, purpose and determination”.

Sweden has not closed its schools, bars or restaurants. As of Monday last week, for all its disunity of purpose, it has a marginally lower death rate than here.

Rather than face up to hard questions, the parties take refuge in soft platitudes. Consider a clear message from the World Health Organisation’s Europe office on the topic of Covid-19 and alcohol: “Avoid alcohol altogether so that you do not undermine your own immune system and health and do not risk the health of others.”

You will search the Irish government’s public pandemic document in vain for any mention of this warning. The system would rather not offend people with difficult truths.

Consider also the clear link between obesity and Covid-19. According to a recent French study, for example, more than 75% of pandemic-induced admissions to intensive care had a body mass index (BMI) of at least 30, making them clinically obese. The study noted that the higher the BMI, the more likely a patient would need invasive mechanical ventilation before concluding that “disease severity increased with BMI”.

You will search in vain the HSE’s web overview for any mention of the link between obesity and the coronavirus. Again, we’d rather not offend people.

The universal and uncritical support of the political class for Slaintecare is echoed in the joint Fianna Fail-Fine Gael document when it states: “We will expand our health infrastructure and expedite the implementation of a universal healthcare service, as recommended in the Slaintecare report.” Never mind that this will cost an additional €2bn a year — on top of public funding for a health service that is already at, or about, the developed world average — or that our health services are uniquely dependent on private funding that will surely be jeopardised by a universal system.

The zenith of ignoring uncomfortable realities is the Fianna Fail-induced determination not to proceed with the scheduled increase in Ireland’s pension age to 67. Never mind that life expectancy has risen by more than 10 years over the past half-century while the pension age has risen just one year.

The most recent valuation of the Social Insurance Fund concluded that it had an actuarial deficit of €335bn. That estimate assumed a real discount rate of 1.5%. The implied deficit would be even higher if a lower — and more realistic — discount rate were used.

Now it seems the Green Party is to be invited to take a governmental test drive in avoiding difficult truths. It wants Ireland to reduce its carbon emissions by 7% a year. Tellingly, emissions didn’t feature at all in the executive summary of the party’s election manifesto that featured 12 policy commitments.

Inside the manifesto, the party relied on an European Commission proposal — not a decision — to reduce EU emissions by 50% by 2030. It pointed to a Danish government decision to cut its carbon footprint by 70%, admitting the Danes “do not yet know how they will be able to achieve the full change”, but concluding the parties “see no reason why Ireland should not be able to adopt a similar approach”.

Never mind that John Fitzgerald, the chairman of the state’s Climate Change Advisory Council, has warned that achieving a 7% fall in annual emissions would be “extremely difficult”.

Rather than a means for society collectively to plot out a sensible path through reality, our political system has become a game show in which winning depends on avoiding reality for as long as you can.

PS:
Having won its formal independence in 1921, Ireland maintained an effective monetary union with the United Kingdom by maintaining parity between the punt and sterling. To keep the link, Ireland offered the same interest rates as the UK, whether appropriate to Irish national circ*mstances or not. Parity was maintained despite the absence of fiscal transfers or even regular annual ministerial meetings. It was successfully maintained because Ireland had the discipline to subordinate itself to the monetary policy of the UK.

The Basic Law of Hong Kong provides that Hong Kong retains full autonomy with respect to currency issuance. Currency is issued by the government and three local banks — HSBC, Bank of China and Standard Chartered — under the supervision of the territory’s de facto central bank, the Hong Kong Monetary Authority. It operates a currency board system that ensures that Hong Kong’s entire monetary base is backed with US dollars at a fixed exchange rate.

That means Hong Kong must have the discipline to import US monetary policy settings, regardless of how appropriate they might be to the territory’s economic needs. This system operates smoothly despite the lack of any fiscal dimension. The Hong Kong dollar is the world’s ninth most traded currency.

Contrast the discipline of Ireland and Hong Kong with the indiscipline of France and Italy, leading members of the euro area. Both countries advocated the European Fiscal Compact when it was signed in 2012. It requires that national budgets must be in balance or surplus.

Between 2012 and 2019, French government debt rose, contrary to the rules, from 90.6% of GDP to 98.1%. Over the same period, Italy’s debt rose, also against the rules, from 126.5% to 134.8% of GDP. Ireland’s fell, in accordance with the rules, from 119.9% to 58.8%.

Having exhausted their individual borrowing capacity when external economic conditions were benign, France and Italy want to use the creditworthiness of more successful states to navigate their way through the raging storm. It’s time the Irish government’s development aid efforts were directed towards boosting competent governance in these countries.