KENMARE CONFERENCE:THE GOVERNMENT should auction off radio spectrum, carbon permits and other assets to the highest bidder to help plug the hole in public finances, but the recession may still last into 2010, the Kenmare economic conference was told last night.
In an opening session dominated by the deteriorating health of the public finances, UCD economist Colm McCarthy and Rossa White, chief economist at Davy Research, said auctioning off intangible assets such as commercial radio and mobile phone licences at their next renewal date should be part of Government strategy to reduce the worsening deficit in the general Government balance (GGB).
In a paper presented to the conference on Fiscal Strategy and Economic Recovery, they also argued that National Development Plan (NDP) projects that would not contribute to future growth should be pruned, the public sector pay bill should match the actual reductions achieved in the private sector and the health and education sectors should be reformed, possibly involving partial State withdrawal.
Mr White told the 31st annual economic policy conference that not only would the economy contract sharply in the rest of 2008 and 2009, but that the outlook for 2010 was "clouded", with the response of Irish banks to the financial crisis the key unknown factor.
"If bank lending to creditworthy businesses and households picks up, the recession will not be prolonged indefinitely, but that is far from certain," he said.
The economy will decline 2 per cent in terms of real GNP this year, according to the two economists.
"Next year, with strong negative carry-over effects and no firm reason to expect an upturn, the economy may shrink by a further 3 per cent in volume."
The public finances will continue to suffer, with the decline in tax revenue likely to be larger than in 2008.
Although there is "very little prospect of getting back to an even keel in a hurry", Mr White said it would "matter greatly" whether the GGB deficit next year turned out to be 6 per cent or 8 per cent of GDP.
In order to avoid the State budgetary position adding to the economy's list of problems, it was important to get this deficit down as rapidly as possible, he said.
The Government should aim to get the deficit close to zero by 2012.
The Department of Finance projection that it would record a tax shortfall of €6.5 billion this year is likely to be closer to €7.5 billion, he said, which will leave this year's GGB in excess of 5 per cent of GDP - well outside the 3 per cent limit in the EU Stability and Growth Pact.
In setting forth their proposals for dragging the public finances into recovery, Mr White told the conference that disposals of State assets would improve revenue without the need for tax increases.
As well as selling off the remaining State-owned commercial companies, the Government could maximise revenue from intangible assets that it has previously tended to give away for free, or at prices well below market value.
These include parts of the radio spectrum used by mobile phone, radio and television firms, carbon permits under the EU emissions trading scheme, mineral and hydrocarbon exploration licences and certain fishing quotas.
Rather than holding tender processes or "beauty contests" for these licences, they should be allocated by auction, with the highest bidder winning.
This would have the advantage of being transparent as well as revenue-generating.
"The companies currently enjoying cheap or free use of these assets have made windfall profits, and some have been sold, creating sizeable fortunes," they said, calling on the Department of Finance to prepare a policy paper on the issue.
What is the Kenmare conference?
Policy makers, economists, business figures and the occasional Government Minister descend on Kenmare, Co Kerry, every October for the Dublin Economic Workshop's annual Economic Policy Conference - a weekend of heated debate, research paper presentations and speeches on the past, present and future state of Irish economic policy.
After last night's opening session on public finances and tactics that the Government could employ budget 2009, today's programme includes an address by Minister for Transport Noel Dempsey on public sector reform, while Minister for Communications, Energy and Natural Resources Eamon Ryan will discuss carbon emission reduction strategies.
Tomorrow, regulation in the energy sector will be discussed. The Irish Timeswill continue its coverage of the conference on www.irishtimes.com and in Monday's edition.
