Public spending is exploding. There may be trouble ahead
Three good causes, all worthy of government aid, at a cost of 3 billion euros (at least) to public funds. But where does it stop?
There is widespread and justified sympathy for women who have spent time in mothers and babies’ homes, whose babies have been taken, and who in many cases have been treated with cruelty and callousness. In a few weeks, the government will announce a compensation plan. Money cannot return what was taken from them, but it can do something else. The total cost is expected to amount to more than a billion euros.
The plight of the people of Donegal and other counties who have been affected by defective concrete blocks also requires government action, most people will agree. Through no fault of their own, they see their homes collapsing. They need help and the government should give it to them. The current compensation scheme is expected to cost more than a billion euros, possibly more, and perhaps, officials worry, much more.
Faced with a chronic housing shortage and fearing a wave of rent increases as the economy opens up, the government is responding to political pressure on housing by moving ever closer to Sinn housing policy Féin and demanding that the Land Development Agency focus on social housing in Cork and Dublin. The Cabinet approved amendments to the relevant legislation this week. This adjustment to the agency’s semi-commercial remits will cost the state money, but the exact amount has yet to be shared with ministers. The figure was removed from the Cabinet memo on Tuesday, a minister complained. I’m told it’s over a billion euros.
The government should spend public money to compensate the surviving mothers and babies of the homes. But where religious orders are to blame, they should contribute, and the state’s contribution should be capped.
The government should spend money to help households in Donegal and Mayo. But it should not give an unlimited guarantee of spending as yet unquantified sums.
The government should spend more money on building houses. But it should do it in a way that gets the best value for money, and doesn’t just end up inflating construction costs because huge sums have been thrown into an industry with limited capacity. And an expensive long-term policy should not be crafted in a political panic.
The state cannot continue to respond to all requests for additional spending with the question: how much do you want?
The issues described above are expected to cost at least 3 billion euros. And the stimulus package announced two weeks ago is expected to cost 3 billion euros (or was it 4 billion euros?). The same day came the promise of a Taoiseach welfare program and a suggestion to reduce Tánaiste’s taxes. The revised national development plan will be available soon. The new “housing for all” plan is imminent. Also a climate action plan. All will require more spending. Ministers resist any change that would cause them to lose projects already underway. New projects will require new money.
In recent weeks, the state has taken on huge new costs equivalent to those usually involved in an annual budget day. There was virtually no debate, and little to no voice questioning the affordability of decisions. Reading the Dáil debates on some of these issues, it is clear that there is no constituency for spending restraint. DTs strive to surpass themselves to demand more public money.
We are in the midst of the largest increase in public spending, across a variety of headings, since 2004-2007, when Brian Cowen was transferred to the Department of Finance to replace Charlie McCreevy, who insisted on cutting spending when his resources decreased.
Paschal Donohoe’s instincts are for caution – and many of his colleagues believe he was too careful before the last election and cost Fine Gael a lot of votes. He thinks the Keynesian spending of the last year and a bit is quite justified – he’s right – but with the reopening accelerating and an economic recovery accelerating almost certainly, he should now think about cutting back. deficit spending, not to speed it up.
He will soon be called upon to show us the color of his money. The government will soon release its summer economic statement. Will it contain deficit reduction targets? Will he seek to anchor public finances in a clear budgetary strategy? Or will it continue the fiscal incontinence of recent months? Behind the scenes, the battle rages on. We will see the results very soon.
Supporters of continued deficit spending point to the newly fashionable idea of modern monetary theory, or MMT, which they believe allows for continued deficit spending due to the ability of governments to finance themselves by printing money. change.
They might be right. There may be a new tax paradigm that allows governments to avoid tough budget choices. Or the world will become less benign, and governments will eventually have to live within their means, raising taxes to finance their spending. Either way, it won’t be Ireland’s choice alone; the EU will get by. The EU will gradually reintroduce fiscal rules and countries will have to run much lower deficits. When this happens, the MMT will start to look like a magic money tree.
At the rate we’re going, we’ll soon have a much bigger and more expensive state. Maybe we can pay it off by borrowing endlessly. It seems like a hell of a gamble to take.