The Dublin University Business and Economics Society (DUBES) post-budget meeting is a highlight of the society’s year. This year was no exception. Splendidly organised by Auditor Alannah Higgins and her committee, and supported by Trinity Business Alumni, the budget meeting attracted a full house. Prof Jim Stewart, strong as ever on corporate tax issues, and Shane Collins, president of the Graduate Students’ Union (GSU), represented College with aplomb. The Dáil, Seanad and the business community were also represented. The debate was informed and erudite. We saw yet again the immense role of student societies in enhancing the role of the university and enriching the student experience.
Budget 2017 was criticised because it spread the “jam” too thinly. The jam is a media name for tax and expenditure adjustments on budget day. For example, the €5 increase in social welfare payments was minimal but came after eight years when no increase was paid. With “vision” more could have been paid, or so the critics claim.
Budget ministers Michael Noonan and Paschal Donohoe (a former student of mine), did not enter public life seeking to harm pensioners, students, social welfare recipients or low income workers. In my time representing the university in Leinster House, I met no member espousing these views. Spending money is something that public representatives are naturally inclined to do. The constraints of recent times arise from the banker-builder bust rather than from changes in political ideology.
There is a huge moral hazard problem if we do not monitor closely all the institutions which drove the Irish economy into the International Monetary FUnd (IMF) rescue programme
The headline deficit for 2010 was 32 per cent of GDP. The 2017 estimate is 0.4 per cent. We are at last able to address the distress caused by our emergency financial measures over the wide range of public spending. A more structured approach by the government would have been to produce a White Paper on the crisis and its consequences showing the impacts across the board by all age and income groups. We could then have tested the validity of claims that tram and bus drivers, secondary teachers and Gardai bore an undue share of a burden imposed on society as a whole.
Having sat for the best part of two years on the Oireachtas banking inquiry, I am not convinced that those at the core of the economic collapse of the Irish economy would not behave in exactly the same way again. The bankers, builders, bank regulators and auditors showed little knowledge of how Ireland got into the crisis. Edward Sibley, a senior figure at the Central Bank expressed fears of a renewed banking crisis the week before the budget. There is a huge moral hazard problem if we do not monitor closely all the institutions which drove the Irish economy into the International Monetary FUnd (IMF) rescue programme.
An annual review of each of the institutions responsible has to be an integral part of the Budget Statement. Otherwise the budgets of recent years will become the norm for years to come. Students, pensioners, teachers and police did not bring the Irish economy to its knees. Those who frame the annual budget will find the causes of economic collapse much closer to home.
The Wright Report and evidence to the Banking Inquiry showed that only sever per cent of senior management in the Department of Finance had qualifications in economics at Master’s level or above, a noted contrast with Canada where the rate was 60 per cent. The proportion of senior staff in departments other than finance is believed to be even lower. It was hardly a surprise therefore when the Budget proposals for a Help-to-Buy Scheme were condemned by all independent economists with expertise in property economics, including Prof Ronan Lyons and Dr Lorcan Sirr. The Budget proposed a 5 per cent tax break on the purchase price of a house costing up to €400,000 and a lower rate of tax break on houses costing up to €600,000.
Students, pensioners, teachers and police did not bring the Irish economy to its knees
Stimulating demand rather than supply increases prices and economists predicted that house prices would indeed rise and the performance of house price websites on budget afternoon confirmed those predictions. Some conspiracy theorists stated that increasing prices and builder incomes was always the intention in any case.
The problem of construction costs in Ireland is that they are indeed excessive. David Dumigan, whose company Hines, is developing residences at Cherrywood, recently gave the Wexford conference of the Dublin Economics Workshop data for construction costs in Ireland of €1,900 per square meter compared to €1,400 in Canada, Germany and Holland. Irish costs are uncompetitive by 36 per cent. The target cost at Cherrywood is €1,600 per square meter which would still be uncompetitive by 14 per cent.
The constitutional officer charged with examining taxation and public spending issues in Ireland is the Comptroller and Auditor General. He has regularly drawn our attention to massive cost increases in construction projects in Ireland. As a sector protected from imports, construction in Ireland imposes considerable excess costs on households, the unsheltered sectors of the economy which face international competition at home and abroad, and, indeed our own university.
From new junior freshmen to gnarled old graduates, economics has much to teach us and is always exciting
The Competitiveness Council should urgently report on a sector which harms our competitiveness. The Help-to-Buy scheme should be scrapped in its present form because it pushes up house prices while subsidising new house purchases at up to €600,000 which is 16 times average earnings of €37,500. Houses at two and a half times earnings were a feature of decades past. The ill-judged “Help-to-Buy Scheme” sees no role for the two million existing houses in Ireland in solving the housing crisis but concentrates on new builds of under one per cent to the stock each year. The lack of economic expertise in the measure has prompted the view that Bob the Builder wrote that section of the Budget 2017. The widespread belief that the construction sector is a type of Keynesian demand management tool for the Irish economy is bunkum. Large public capital projects lack even basic cost-benefit analysis but enrich their promoters.
Dr Morgan Kelly, a scholar in economics in College, took on the entire economic policy establishment in Ireland prior to the banking collapse. He was proven correct. In the aviation sector we argued for years that the cartel of national airlines imposed serious costs on our outer offshore island economy and were proven correct. Ryanair, with 117 million passengers, is now the biggest airline in Europe. Economics is at its best when it thinks on the outside of the insider-outsider model. That is the key to understanding the budgets of the last eight years and the counterproductive house proposals in Budget 2017. From new junior freshmen to gnarled old graduates, economics has much to teach us and is always exciting. Bin the PR handouts and enjoy it. Your own thoughts are invariably superior.
Sean Barrett is a Fellow Emeritus of the College, taught in Trinity’s Department of Economics for four decades, served as an independent senator on the TCD panel and served on the College Board under several provosts.
