The negotiations on forming a new Government – such as they have been so far – appear to risk repeating some of the mistakes of the past. So far, in terms of detail, we have seen a lot of uncosted commitments and little in terms of overall strategy for the economy or the public finances.
It is not as if we haven’t made this mistake before when administrations were being formed, with a host of promises unveiled in a negotiated programme for government, inevitably storing up problems and political disappointments for the future.
This time, of course, numbers make the negotiation of the new Government even trickier than usual. The longer this process goes on, the greater the risk of disturbing business and consumer confidence or of being unprepared in the event some significant decisions are urgently required. Following yesterday’s failure to elect a taoiseach with the Dáil not due to meet again until April 14th that scenario has become a more worrying threat.
The most obvious immediate risk is a vote in favour of Britain leaving the EU, or nervousness in the run up to the referendum. Key issues such as the housing crisis and growing tensions over public service pay also remain unaddressed. Let’s not pretend that an “acting” administration can handle any of these significant decisions. The reality is that it can “ mind the shop” for a period but cannot credibly make major decisions.
The economic outlook remains favourable, though Brexit could provide a nasty shock and a period of uncertainty. And there are signs in income tax figures, and in some economic indicators, that the rapid growth rate seen last year might be easing.
It is too early to reach a firm conclusion, but the latest consumer sentiment figures, showing a significant fall in March, should not be ignored. The longer the task of government formation takes, the greater the risk that uncertainty builds and that a mild slowdown in growth turns into something more troublesome.
Part of the task facing the next government will be to manage competing demands for resources, as uncertainties swirl around. On existing estimates, there will be limited room for manoeuvre in next year’s Budget, though possibly more in future years, if growth continues.
On the other side of the equation, we see growing pay demands from the public sector, an expectation of tax or USC cuts, promises in relation to water charges and a host of other commitments now emerging as part of the talks.
There will be nowhere near enough cash to meet all the competing demands. Choices are needed and for these to be made, a stable Government is critical. There should be enough resources to make progress in meeting many of the key problems but not all at once. And it is essential that resources go to where they are needed most, rather than to those who shout loudest.