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Updated 4.10pm
THE SO-CALLED fiscal space has dominated the opening days of the general election campaign.
The term is not nearly as complex as it sounds. Put simply, it’s the amount of money that will be be available to the next government over and above what it is already spending on public services like health, welfare, education and so on.
The money does not yet exist and is dependent on strong economic growth of around 3% over the next five years. But it has now emerged that Fine Gael, Fianna Fáil and Labour had all been miscalculating the fiscal space in recent weeks with the embarrassing result – for them – that only Sinn Féin has its numbers right.
For Fine Gael and Labour this is particularly serious given they claim to have the only credible economic plans for the country over the next five years. But, in fact, the figures they have bandied about in recent weeks have been wrong by a massive €2 billion.
How did this happen?
Less than two weeks ago Finance Minister Michael Noonan told the Fine Gael Ard Fheis that the money available would be €12 billion:
Our Expenditure Rule ensures that our commitments are sustainable by capping the growth of budgetary commitments at below the long-term growth of the economy.
This rule will limit new budgetary commitments to €12 billion over the five years from 2017 to 2021. This is half of the budgetary expansion in the last five budgets in the years which preceded the crash introduced by the Fianna Fail led Government.
As for the Labour party, Public Expenditure and Reform Minister Brendan Howlin said pretty much the same thing at the party’s conference last weekend:
The figures, confirmed by the Department of Finance, given to all the parties in replies by the Department of Finance, is €12 billion and that, I believe, is the figure we should work on.
How did they reach that number?
The two parties based their figures on what they said the Department of Finance was telling them. The department released an information note last week which explained how it calculated the fiscal space.
It said the gross fiscal space was €10.9 billion if economic growth over the next five years is on average 3%. It then included €1.4 billion as a result of the expected relaxation of EU fiscal rules on deficits because Ireland’s economy is performing so strongly.
Included in the note, the Department said that if the next government did not apply indexation then €2 billion would become available.
What’s indexation?
This involves adjusting tax rates and bands to keep up with inflation, which is the rising cost of goods and services. Indexation would also involve increasing social welfare payments to keep up with inflation. Effectively it means that as the cost of living rises, the government adjusts taxes and welfare payments accordingly.
But this is a decision for a government to make, not the civil service. This is why the Department of Finance assumed that the indexation would not apply.
So what did the parties get wrong?
Labour interpreted the Department of Finance figures to mean that the structural balance in 2021 would be €8.6 billion. It then claimed that €2 billion from non-indexation of taxes as well as the €1.4 billion from the relaxation of fiscal rules would create a total space of €12 billion. Fine Gael appeared to do the same.
To further confuse matters, Fianna Fáil leader Micheál Martin claimed on RTÉ News on Wednesday that the fiscal space would be €8.6 billion before claiming the non-indexation of taxes would generate a further €2bn.
However, Labour is now privately admitting that the tax indexation figure of €2 billion was double-counted and should have been included in the €8.6 billion figure.
Who got it right?
It was left to Sinn Féin to clarify matters when it put the following statement in an email to the chief economist in the Department of Finance John McCarthy:
The potential additional revenue that would be generated from a political decision not to proceed with indexation is approximately €2 billion. This additional revenue from not indexing is included in the net fiscal space figure of €8.6 billion. Conversely, the net fiscal space of €8.6 billion cannot be increased from non indexation.
McCarthy responded that this was indeed correct. Therefore the available fiscal space, when non-indexation is included, is €8.6 billion.
This is how much Sinn Féin says is available to spend over the next five years. Fianna Fáil now agrees with that number. A spokesperson confirmed this morning that the party is working off €8.6 billion being available.
What are Fine Gael and Labour working off?
Fine Gael says the fiscal space is €10.1 billion, because it’s including the €1.5 billion it says has been freed-up by the loosening EU fiscal rules, which allow Ireland to run a small deficit in 2018. The party launched its so-called long term economic plan yesterday.
Labour is now also saying the figure is €10.1 billion but adds that it will create additional resources by raising extra revenue. It’s publishing its fiscal plan next week. Speaking today, Howlin suggested that the government, if re-elected, could exceed the €10.1 billion figure:
I believe we will exceed them as we have done in everything we’ve done for the last five years and the fiscal space will be greater than that. But we will act on the basis of prudence.
Why does this matter?
Fine Gael and Labour have consistently criticised the so-called “fantasy economics” of Sinn Féin and have mocked Gerry Adams for his admission that he is not good at maths.
But in this case it appears that Sinn Féin is the only major party to get the figures right. Howlin wasn’t prepared to acknowledge that today, saying only:
I’ve no quibble with Sinn Féin. I do have a quibble with Sinn Féin economics normally.
But when economic competence is all-important when it comes to the next government, it appears the current one screwed up the numbers – and that’s not good for its re-election hopes.
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The EU gives taxpayers money to Pakistan. Have a nice Sunday!
@Griff: As does the US. So your point is?
@Mick Jordan: I don’t pay taxes in the US so I don’t give a shit. I do however have a problem with the EU giving money to a country that spends vast amounts on nuclear weapon programs. Do you get the point now?
@Mick Jordan: the US are at least calling the aid into question as a result of Pakistani terrorist supporting ways. The EU responded by criticising the racist rhetoric of the US.
@Griff: stop giving aid to Afghanistan because Afghanistan provides shelter to foreign terrorists against local terrorists. This is how Afghanistan fights terrorism. Stop giving aid to a Hezbollah – Hamas like milita in Afghanistan
@Griff: We Irish receive more from the EU than we pay. So your argument about being an Irish Taxpayer is irrelevant. What you are attempting to do is make this into an Anti EU thing rather than an Anti Pakistani issue.
@Mick Jordan: thats not true. We Irish used to receive more from the EU than we pay. However now we are net contributors to the Eu.
@JimmyMc: Not since 2008 we are not. We returned to net recipients after the Finacial crisis began. We were a net contributor for a few years during the Celtic Tiger but that time has passed.
@Mick Jordan: that’s just not true. In fact Ireland became a net contributor to the EU in 2014- ironically, while under EU austerity measures.
https://www.businessworld.ie/economy/Ireland-contributes-more-money-than-it-gets-to-EU-for-first-time-564636.html
Pakistan has being playing on both sides of the fence since the 70′s. It was they that formed the Taliban in the 80′s, it is they that have financed and armed them since. And it was Pakistan that hid Bin Laden for years. And it was Pakistan that initially sold nuclear material to North Korea.
@Mick Jordan: If anywhere in this world needs to be invaded its Pakistan, it’s a complete schithole, corrupt government, police, army and secret service. All of them active terrorists!..This country serves no purpose on this earth to anyone or anything only islamic extremists and terrorists…Nuke it, every inch of it!
@Mick Jordan: But Afghanistan provides shelter to terrorists and therefore it will pay the price. Issue of Durand line is created by Afghans not us and therefore terrorist is the one who doesn’t doesn’t recognise the international border
@Not a Historian: The Hakani network is a Pakistani based terrorist organisation. Situated in the Swat valley region of North West Pakistan. Funded and armed by the Pakistani Intelligence Service along with its brother organisation the Afghan Taliban. Afghanistan as a State is in reality one in name only. The Central Government has little or no control over large areas of the country.
When is Donald Trump going to cut his ties with the Wahhabist Saudi Arabia and Pakistan? Why is he providing U.S. funding to these countries?
@Alt Right Crybaby: He announced this month that Pakistan was losing funding for this specific point, something Obama never did. As for Saudi Arabia, it’s not funding they get , it’s arms deals, as most European countries continue to do. But hey, let’s not let facts get in the way of Trump bashing!!! The problem was Saudi Arabia funding extremist mosques and schools around the world which promoted an extreme form of Islam.
@Brian Smith: Oh it’s only arms deals, phew, I thought it was something more dangerous and sinister than that!
Proof read for the love of God!!
RIP. Those poor people.
It all stems back to the Durand line. A temporary line carved out by Britain to protect India from Russia. The line divided the pushtan tribe in afghanistan and half it’s tribe ended up within Pakistan borders and has caused chaos ever since. This is what happens when British colonialists carve out delimiters willy nilly on a map.
The line should have dissolved and the pushtan province should have reverted back within Afghan borders in 1993 but conveniently Britain lost the original Afghan copies outlining this temporary border but presented an English copy with this vital component omitted.
@saoirse janneau: I just knew when I read this story about middle easterners killing other middle easterners it just had to somehow be the fault of Europeans. Are darker skinned people ever responsible for their own actions and behaviour in your view, or is it always indirectly the fault of white people? Are you familiar with the concept of the soft bigotry of lower expectations?
@saoirse janneau: dude, it is an internationally recognised border and Afghanistan doesn’t recognise it so clearly it is Afghanistan who’s behind terrorism. As long as Afghanistan differentiates between good & bad terrorists such large scale attacks are going no where because terrorists are friends with no one
@Liam Doyle: not referring to skin color at all. You are. Look up the history of the partitioning of Ireland and what ensued and get back to me.
@Liam Doyle: Hmm! saoirse has a very similar writing style to Tony Daly and Fiona de Freyne.
@saoirse janneau: childishly simplistic argument. The Troubles in Northern Ireland stemmed from sectarian inequality and subjugation. Troubles ended when these factors were addressed, and yet we remain partitioned. Your argument is “muh, line on map was drawn here and 50 years later trouble broke out, ergo drawing lines on maps causes trouble to break out, thus those that draw the lines are responsible for the trouble, not the combatants.”
Are you familiar with the concert of the soft bigotry of lower expectations?
@Liam Doyle: the country was divided without proper consultation. The Durand line has never been recognised by any Afghan government even though it’s said to be Internationally recognised without the acceptance of a vital party. Karzai and his government has never recognised it. The Pashtun tribe has been divided and as such there are strong allegiances across each border for the Taliban to move in either direction as they don’t see a border. The similarity between the situation in the North is that vast tracts of the population on either side didn’t recognise the partition. There was movement in and out of both sides of the border by paramilitary factions as there is there.
@Liam Doyle: in relation to your bigotry comment there is always a story in the backdrop to violence (which i dont condone). The human race isn’t that erratic . Brown or white.
@saoirse janneau: OK, but as already outlined partitioning Ireland did not lead to decades long violence in response. There were problems initially of course, our civil war and inter community clashes north of the border. But this all died off, and the conflict that sparked in the late 60s was a direct result of discriminatory policies enacted by the Orange state, not continued resistance the border. We accept the border now, and recognise it can only be removed by democratic mandate. Afgans and Pakistanis don’t recognise the border (sykes-picot lines all over the mid east, hardly a uniquely pushtan problem) and they want it removed by slaughtering those who resist their vision. It ain’t the Brits’ fault they’re primitive savages, it’s their own fault for acting like primitive savages.
These fanatics must be defeated and destroyed just like the IRAs,
@Adam Reid: This is bait.
@Anthony Flanagan Mark: blowing up of innocent people just different part of the world!
@Anthony Flanagan Mark: I guess a phone warning makes it all ok then, I suppose you blame the authorities for those who died in the bombings and not the actual bombers!
Those who provide shelter to terrorists will definitely pay the price & Afghanistan shelters terrorists. Afghanistan must understand that terrorists are friends with no one !
@Not a Historian: Your name is fitting.
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