A modern finance minister must manage the economy, and also manage public expectations about budget giveaways, and do so without jeopardising the public finances. Michael Noonan, during his tenure in that department, has performed this exercise skilfully, by under-promising in setting annual budget targets and by over-delivering when later beating them. And so far this year, it seems, that familiar pattern is set to continue. Mid-year exchequer returns indicate revenue receipts are well ahead of initial forecasts for 2015, spending remains under control, and a lower Government deficit than first estimated is likely by year-end.
The Minister for Finance, wisely, took the opportunity of a high-profile Cabinet meeting at Lissadell House to dampen rising expectations of bigger tax cuts in the October budget. A general election is due within months, but both Taoiseach Enda Kenny and Tánaiste Joan Burton again ruled out holding it before next year. Mr Noonan has made it clear that the position adopted by the Government in its Spring Economic Statement – indicating spending increases and tax cuts of up to €1.5 billion – would be strictly maintained. Any further fiscal easing beyond that figure was not possible, he told his Cabinet colleagues. This emphatic statement helps to establish a firmer line on the public finances, and was no doubt taken both to pre-empt likely demands by Ministers for extra resources, and to appease some critics.
Nevertheless, the Government is facing some criticism for its proposed budgetary stance for 2016. The Irish Fiscal Advisory Council (IFAC) – a statutory body that monitors budgetary policy – has said that the proposed fiscal easing is excessive and has questioned aspects of the Government's medium-term spending projections. And the European Commission has expressed some similar reservations in its recent surveillance report on Ireland.
The Irish economy, in its recovery from economic recession, has made remarkable progress: unemployment has fallen from a peak of 15 per cent to under 10 per cent. The economy has grown far faster than most had anticipated, greatly helped by low interest rates and a weak euro, which have made Irish exports more competitive in key markets: Britain and the US.
Nevertheless, the high level of outstanding accumulated debt – sovereign and personal – leaves Ireland vulnerable to an unexpected event: whether that be a sudden change of sentiment in financial markets that could push up our borrowing costs; or a setback in the world economy that could derail the strong economic recovery now under way. The Government in framing the 2016 budget, set against the political background of an imminent general election, also needs to exercise caution and ensure that a resilient Irish economy is well placed to handle any unexpected event.