Donohoe torn between need for thrift and temptation to spend

He will not be ignoring the Fiscal Advisory Council, Minister for Finance Paschal Donohoe said on Tuesday, following the publication of stinging criticism in the independent body's most recent report.

Well, it would have been remarkable if he said he was going to ignore the state’s economic and public spending watchdog.

The council was set up after the financial crisis to ensure that future governments did not make the same mistakes that led to the excruciating period of austerity following the global crash of 2008. Now it has warned the Government that it is at risk of making economic and fiscal mistakes that are only slightly different from the ones adopted so enthusiastically by the latter-period Ahern and Cowen governments.

Donohoe was his usual impeccably polite self yesterday – but the Government has been seriously rattled by the criticisms of the Fiscal Advisory Council. Its chair, Prof Seamus Coffey, is not the most popular person around Government Buildings these days.

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One of the principal complaints you hear from people in Government – it’s certainly prominent in the talking points distributed to TDs and ministers, judging by several recent interviews – is that Fianna Fáil and the rest of the opposition only take a break from criticising Paschal Donohoe for his fiscal recklessness when they are demanding higher spending in Private Members’ motions every second day in the Dáil.

Political hypocrisy

Well, yes. You can see where they are coming from. But that is hardly the point. The opposition may well be guilty of political hypocrisy, but this isn’t about the opposition. It isn’t even about the Fiscal Advisory Council. It’s about the Government and its management of the public finances. And frankly, there is a case to answer.

Coffey’s rap sheet can be boiled down to one central charge: spending discipline has significantly eroded, especially by unplanned and unbudgeted increases, while recurring liabilities in public spending are being taken on at a time when the exchequer is buoyed by revenues from corporation tax which may well be transient.

Privately, people around Government tend to take two positions: one, spending growth is rising in the context of a strongly growing economy, and two, bloody Prof Coffey doesn’t have to run for election, does he?

Grumbling that Prof Coffey doesn't have to run for election is like complaining that the referee isn't helping you win the game

The first of these rests on shaky foundations; the second is hardly the point. Firstly, economic growth is expected to slow over the coming years, and the threat from Brexit means it could halt abruptly. Even the Government admits that.

Secondly, the whole idea behind the Fiscal Advisory Council is that economic experts who didn’t have to run for election would provide independent economic advice and criticism of Government policy. This is in order to insulate the country against pro-cyclical economic decisions designed for political benefit, not for long-term again – in other words, to avoid the mistakes of the past. Grumbling that Prof Coffey doesn’t have to run for election is like complaining that the referee isn’t helping you win the game. That’s not his job.

Severe pressure

There is little doubt that the Government is under severe pressure to increase public spending across a wide variety of areas – in some where there is pressing social need. Housing, the health service, carers, army pay, drugs and treatment for people suffering dreadful conditions: open the paper or turn on the news any day and you’ll see the extent to which there are demands for more State funding that are difficult, on their merits, to contest.

It's hard to make those choices. Then again, if good government was easy, everyone would be doing it

That’s the thing about being in Government, though: it’s your job to choose between the different worthy causes, to prioritise and then to make the case for your choices. It’s easy to talk about fiscal prudence, but it’s very hard to work it in practice. It’s especially hard in a country where there is an insatiable demand for State action in every area of society and a public debate that often reflects those demands uncritically and without the context of competing needs and finite budgets.

It’s hard to make those choices. Then again, if good government was easy, everyone would be doing it.

There is an acute awareness around Government of the need for the administration to exercise spending discipline. Some in Fine Gael argue it must recover a reputation for economic prudence – damaged by recent controversies, and damaged again by the Fiscal Advisory Council’s criticism – before it faces the voters.

There is also an awareness that an election is coming sooner or later, and Fine Gael will be judged by many voters on the failings of public services. The temptation to throw money at problems is not new to this administration. But it has never been greater.