National economic planning always involves dealing with significant uncertainties. Ireland’s economy has been upended on a number of occasions, requiring sharp changes in policy direction, most notably during the financial crisis which hit after 2008.
So a key test of the revised National Development Plan due to be unveiled today will be its resilience. Inevitably a change in economic circumstances will mean that flexibility is needed in any plan, but are the broad goals of what will be outlined achievable, even if the economy is hit by some kind of slowdown, or even a downturn?
Some lessons have been learned in the management of the public finances, with cash being put aside in two funds for the future and the annual figures being kept in surplus. That said, decisions have been made much easier by a big surge in corporation tax. And this has allowed the Government to increase day-to-day, or current, spending rapidly, alongside higher capital investment.
To leave sufficent leeway, further growth in State capital investment has to be married with tighter control of current spending. Hints on the strategy here may be contained in the Summer Economic Statement, also due for release today. And in the years ahead more tax revenues are also going to be needed. The Irish tax base is increasingly reliant on potentially transient corporate tax receipts and on income tax paid by middle and higher earners.
RM Block
The key immediate uncertainty in national planning comes, of course, from the new US policies on trade. Significant financial buffers are needed to deal with the potential fall-out here and its implications for growth and tax revenue in the short term.
Ireland cannot go back to a situation where it is forced to slash State investment to balance the books, as happened after the financial crash. The State is still paying the cost of that today through massive deficiencies in housing and other infrastructure. Strong economic growth and high immigration have added to the pressures.
Delivery is also vital, of course . Ireland’s slow progress on major investment projects has cast doubts over economic growth prospects, potentially hampering investment. Dealing with this is a key social, as well as economic, priority.
The outlook may be seriously affected by what happens between the EU and the US in trade talks over the coming weeks. Whatever transpires, it is fair to assume that significant uncertainty will remain for a prolonged period of time. And that this will raise questions about Ireland’s economic model and how it needs to adjust.
More investment in key infrastructure is a vital part of the answer. As we consider how this is to be paid for, we can only hope that the impact of Trump’s trade policies, while certain to be serious, does not become hugely disruptive.
