Irish Medium-Term Economic Strategy 2014 – 2020: Plan or Aspirations?

golfwallah

In his address to the nation last Sunday, Taoiseach, Enda Kenny, promised a medium-term economic strategy up to 2020. This was launched on Tuesday of this week: http://www.finance.gov.ie/documents/publications/reports/2013/mtesfin2013.pdf

At best, we can at least say “we have a plan” but realistically it looks like a bit of a fudge - a ”kick the ball down the road” to wait for more “detail” from government departments.

What a change from the hard targets and agreed delivery dates contained in the MOU agreed with the Troika – I guess that’s what is called “regaining our economic sovereignty”.

So far, response to the plan has been mixed:
Michael Hennigan of Finfacts is sceptical, especially on the level of analysis and detail:

The report is much weaker and unimpressive than we expected and it lacks any attempt at SWOT analysis: strengths, weaknesses, opportunities and threats. If only aspirations and platitudes could be monetised.
The Government has no credible ideas on how to develop a sustainable jobs engine. Yes, lots of actions can help but that is not a strategy.

http://www.finfacts.ie/irishfinancenews/article_1027902.shtml

According to the Irish Times, the Small Firms Association says it is “short on detail”. SIPTU says it stops short of specific actions: http://www.irishtimes.com/business/economy/kenny-aims-to-replace-jobs-lost-in-recession-by-2020-1.1630712?page=2

May take a while, but it will be interesting to see how the markets react.

AlmightyCushion

The big problem I have with it is that we won't balance the budget until 2020. How much more debt is that going to riddle the state with and how the hell do they plan to pay the interest on it?

golfwallah

AlmightyCushion wrote: »

The big problem I have with it is that we won't balance the budget until 2020. How much more debt is that going to riddle the state with and how the hell do they plan to pay the interest on it?

As always - the difficult question!

Why come up with specifics when we can come up with a fudge along the lines that "we can't go mad" or "things will be grand in 7 years time" - and leave it to the Departments to come up with the detail.

So much for leadership! Who needs the discipline of a detailed plan? We're all adults here and at least we're not FF!

Looks a lot like "teacher (Troika) has left the room" and the pupils are left to do what they like.

flutered

it cannot balance the budget by then, what figures do they give, the interest rate for next year is unreal, without any principal, then there will be an election type budget the year after, an easing of taxation for the workers is due, noonan is hoping that it will be spent, it will of course, but not in the shops, it will be spent paying bills, mostly on morgages. not in the shops, in my experience it was female civil servants who were the shoppers.

golfwallah

In management parlance, plans should be SMART (Specific, Measurable, Achievable, Realistic and Time-scaled).

Our latest medium term strategy is more like a VACUUM (Vague, Aspirational, Cautious, Unmeasurable, Unachievable, Movable).

Whatever you may think about the plan agreed with the Troika (“Austerity”), at least it was clear to all and sundry that we had one and that it was being driven from the top. Now we just have vague “strategic” aspirations with government abdicating responsibilities to its departments. No wonder it has been panned, not only by the political opposition, but also by many commentators (particularly regarding reform of the health and banking sectors): http://www.independent.ie/opinion/columnists/john-downing/john-downing-why-roadmap-to-recovery-doesnt-inspire-confidence-29847540.html

It's not as if they hadn't enough time to come up with a "SMART" plan. Government seems to have replaced a policy of blaming the Troika Plan (as signed off in the IMF/EU/ESF MOU) and Fianna Fail with one of just blaming Fianna Fail, as they now have no plan by which their performance can be measured according to specified delivery dates.

Maybe it’s the cynic in me, but as FF has cast itself in the role of bogey man for a few more years yet, is there an element of preparation for a pre-election budget in all of this vagueness?

_Kaiser_

This "plan" (if you could call it that given the lack of details/specifics) is meaningless for one simple reason.

It assumes that the current government will be returned in 2016, and that we aren't going to end up with FF again (which is FAR more likely IMO).

Even IF FG are returned, it's highly unlikely that LAB will be, in which case (barring a full majority) FG will have to engage in more favours and compromises as is the norm in politics to form a government.

All this plan is designed to do is drag things out to 2016. Expect a giveaway budget (maybe not to the levels of the "good times" but giveaway nonetheless) in the Oct/Dec 2015 budget to try and buy votes, but if it goes sour you can be sure that the senior/older members of the current government will retire with their pensions - just as Cowen and Co did before them - or go to Europe (Enda is already positioning himself for such a move)

One thing is sure.. if a recovery happens in real terms in this country it'll be very little to do with whatever government is in power at the time .. but I fully expect them to take as much credit as they can regardless.

flutered

smoke and mirrors, with as an added bonus the three card trick, spot the lady, except i do not believe that any of the three cards is a lady.

Idbatterim

I could see it being FG and Labour again, if Labour recover some of their lost support...

golfwallah

The government medium term plan’s assumptions about growth at an average of about 3% annually are problematic, according to Colm McCarthy: http://www.independent.ie/opinion/columnists/colm-mccarthy/colm-mccarthy-back-off-barroso-you-did-very-little-to-help-29859125.html.

This is because without growth, the debt burden will continue to grow and default risk will stay high.

And the downside risk of zero or little growth are high because the plan contains:

little in the way of policy reforms that might enhance growth prospects

The examples McCarthy gives are the slow pace of reform of the Legal and Banking Systems.

He pulls no punches in his criticism of European Commission President, Jose Manuel Barroso’s, recent remarks about Ireland either.

_Kaiser_

golfwallah wrote: »

He pulls no punches in his criticism of European Commission President, Jose Manuel Barroso’s, recent remarks about Ireland either.

Ah yes, I read some of that in the last few days - and now our EU "friends" are miffed that we aren't falling over ourselves to give them thanks for their "help"?? Not to worry - I'm sure the "deeply European" Kenny will be over grovelling soon enough! :rolleyes:

Every time I read statements like Barroso's it just reinforces my belief that the EU is so fundamentally flawed that it'll never work. You can't take a group of sovereign nations, with different cultures, values and priorities, and which were blowing the crap out of each other only a few decades ago, throw them all together and pretend that they're all one big happy family without any effort being made to foster such a belief among the average citizen - it's all very well talking about "banking unions" but the EU isn't (just) a bank, something that's been forgotten along the way.

maninasia

The best way for Ireland to solve it's economic issues is to achieve higher levels of growth as at a certain stage austerity becomes self defeating and Ireland has one major key that can activate this growth...and it's one we are all familiar with already.

The construction industry should be supported as priority (through specialised loan lending) to build more housing and more offices in the Dublin area and perhaps other metro areas. This is a realistic and practical plan which will result in rapid employment take-up and it will match the demand that already exists.

This will reduce social welfare payments (and therefore need for borrowing) and increase growth at the same time.

It will also help in providing accommodation and offices for workers in growing industries such as IT.

Economic growth increases GDP and reduces expenditure so it's effect is approx double that of austerity in terms of getting the GDP vs Debt ratio down to manageable levels.

golfwallah

Kaiser2000 wrote: »

Ah yes, I read some of that in the last few days - and now our EU "friends" are miffed that we aren't falling over ourselves to give them thanks for their "help"?? Not to worry - I'm sure the "deeply European" Kenny will be over grovelling soon enough! :rolleyes:

Every time I read statements like Barroso's it just reinforces my belief that the EU is so fundamentally flawed that it'll never work. You can't take a group of sovereign nations, with different cultures, values and priorities, and which were blowing the crap out of each other only a few decades ago, throw them all together and pretend that they're all one big happy family without any effort being made to foster such a belief among the average citizen - it's all very well talking about "banking unions" but the EU isn't (just) a bank, something that's been forgotten along the way.

No ... the EU isn't just a bank. But it's not an express train either, when it comes to decision making, particularly when there is no unavoidable, immediate crisis.

Would agree that the pace of change is painfully slow at times, but wouldn't quite agree that it will never work. Maybe it's human nature that people avoid big decisions until they have no other choice ... and good political leaders can sense changes in the public mood and time any proposed change so as to bring the majority along with them.

At this stage, anyway, and regardless of what Barroso says, our Enda still expects a bank debt deal: http://www.thejournal.ie/taoiseach-bank-debt-deal-eurozone-1232196-Dec2013/?utm_source=shortlink.

Let's hope he also hones the medium term plan to come up with more specific, time-limited deliverables, whatever happens on bank debt.

flutered

if dame enda really wanted a bank deal he would not have kept the dail bar open all night ans allowed the dail to be turned into a mini lap dancing club, he could have waited until the next high court case involving the legality of the permissory notes, then turned to his dominitrex merkel and said, look it is out of our hands the courts have ruled then he would have had a deal, in fact the mother of all deals.

golfwallah

Issuing optimistic economic forecasts, while doing little or nothing to make them happen, is not confined to Ireland - it is also happening at EU level, according to Colm McCarthy in yesterday's Sunday Independent:

Rosy assessments of economic prospects in Europe keep running up against a few inconvenient truths: the economies in most countries are showing no signs of recovery, the banking system is still broken and there is no political willingness to fix it. The overall stance of macroeconomic policy at eurozone level remains restrictive, despite the evidence of widespread stagnation. The policy stance is to issue upbeat forecasts while doing nothing to make them a reality.

This article centres mainly on the eurozone banking crisis, but the same symptoms seem to apply to a lot of other controversial, thorny political problems at home here in Ireland. Looks a lot like we will have to lurch from crisis to crisis, waiting for things to be badly broken before politicians will eventually take action of any sort to attempt to fix them.

Meanwhile, stuff like economic plans and our much vaunted "economic sovereignty" will continue to be mere window dressing.

For full article, see: http://www.independent.ie/opinion/columnists/colm-mccarthy/euro-stuck-in-danger-zone-without-an-escape-plan-29872911.html

Suryavarman

maninasia wrote: »

The best way for Ireland to solve it's economic issues is to achieve higher levels of growth as at a certain stage austerity becomes self defeating and Ireland has one major key that can activate this growth...and it's one we are all familiar with already.

The construction industry should be supported as priority (through specialised loan lending) to build more housing and more offices in the Dublin area and perhaps other metro areas. This is a realistic and practical plan which will result in rapid employment take-up and it will match the demand that already exists.

This will reduce social welfare payments (and therefore need for borrowing) and increase growth at the same time.

It will also help in providing accommodation and offices for workers in growing industries such as IT.

Economic growth increases GDP and reduces expenditure so it's effect is approx double that of austerity in terms of getting the GDP vs Debt ratio down to manageable levels.

The best way to recover from a recession caused by a construction bubble is to start another construction bubble? I think that might cause a problem.

ardmacha

Whatever about a construction 'bubble', construction has fallen to half of the long term normal and moving to that normality, but not beyond, makes sense.

golfwallah

Suryavarman wrote: »

The best way to recover from a recession caused by a construction bubble is to start another construction bubble? I think that might cause a problem.

Nobody is advocating

to start another construction bubble.

The whole point of this thread is the absence of specific, time-bound actions in the Government’s Medium Term Plan. This is more likely to lead to more inertia and foot dragging rather than initiatives to prompt real economic growth, such as the few examples proposed by maninasia.

It is well documented that there is a need for more modern, serviced office space for workers in the developing IT sector – without it the work, associated wages / salaries and opportunities for suppliers will go elsewhere. Moreover, the workers in these industries want housing and other facilities that are currently in short supply, particularly in Dublin. There is no comparison between this limited, target driven proposal and the last pervasive and speculative property bubble, fuelled by borrowing and using inflated asset prices as collateral.

The proposal you labelled as a bubble is anything but that. In fact such a targeted, business focused proposal would help limit the effects of the mini-bubble currently happening in Dublin because of a shortage of suitable office space and housing.

It’s easy to be negative and knock every property development proposal just because of recklessness of certain powerful people, who should have known better during the Celtic Tiger. That’s like a sick person becoming totally risk averse and condemning the whole medical profession because of a bad experience with one doctor or one hospital.

What we need are positive, business focused initiatives that will drive Ireland’s economy out of recession, as opposed to doing nothing and hoping it will happen. Of course there are risks involved and not all initiatives will succeed, but with the right mix of projects and professional risk management, this country can win through to a better future.

We can't get through this recession by cost cutting only - somewhere along the line we need more income / growth! What's missing, at the moment, is the courage and leadership to make this happen.

golfwallah

Here's an example of a government tax incentive in the 2012 budget that some people, trying to break into house ownership in Dublin, say is contributing to house price (and rental) inflation in Dublin:

a new incentive relief from CGT has been introduced for the first seven years of ownership for properties purchased before the end of 2013, where the property is held for more than seven years.

For full article on this relief see: http://www.reddycharlton.ie/news-and-publications/single-view/article/incentives-to-investing-in-irish-property/?cHash=1f12b13ba18d9962042a7051531f8cac

Sand

ardmacha wrote: »

Whatever about a construction 'bubble', construction has fallen to half of the long term normal and moving to that normality, but not beyond, makes sense.

@golfwallah

What we need are positive, business focused initiatives that will drive Ireland’s economy out of recession, as opposed to doing nothing and hoping it will happen.

Construction will return to "normal" in its own time without any need for government pressure. There has been an epic mis-allocation of resources into building offices, hotels, apartment blocks and so on at breakneck speed throughout 2000-2010. Its hardly unusual that having done so there's reduced activity whilst the market tries to digest the feast of construction projects in the midst of a not-unrelated depression.

If the construction industry cant reach "normal" activity without government handouts and concessions then maybe the target activity isn't actually normal? It would instead be a bubble - a level of activity and investment not supported by actual market demand. If there is a demand out there for office space and property allegedly in short supply in Dublin it might be solved by NAMA selling its vast portfolios at market price? Once that is done, then lets see the true demand out there.

Suryavarman

ardmacha wrote: »

Whatever about a construction 'bubble', construction has fallen to half of the long term normal and moving to that normality, but not beyond, makes sense.

Construction activity spent a prolonged period of time above its long term average prior to the crash. Therefore it is to be expected that it will spend a period of time below that average to correct the over construction that occurred during the boom.

golfwallah wrote: »

It is well documented that there is a need for more modern, serviced office space for workers in the developing IT sector – without it the work, associated wages / salaries and opportunities for suppliers will go elsewhere. Moreover, the workers in these industries want housing and other facilities that are currently in short supply, particularly in Dublin. There is no comparison between this limited, target driven proposal and the last pervasive and speculative property bubble, fuelled by borrowing and using inflated asset prices as collateral.

The proposal you labelled as a bubble is anything but that. In fact such a targeted, business focused proposal would help limit the effects of the mini-bubble currently happening in Dublin because of a shortage of suitable office space and housing.

If there was such a need for new office space and housing then why aren't there any property developers out there building them? Surely there would be large profits to be made and any sensible property developer would see the benefit of constructing new office space and housing.

There is also the possibility that developers have examined the market and don't see any profit to be made from such projects. This would suggest that any efforts by the Government to artificially stimulate construction activity would result in unsustainable projects being undertaken.

Godge

The main problem with the plan is its vagueness.

However, there are a few very dangerous and wrong statements in it. For example, on page 24 it is stated that the investment of the last decade met most of the criticial infrastructural needs.

Well, off the top of my head, I can think of three critical infrastrucutural needs holding back the economy:

- public transport in Dublin (in particular the Dart Interconnector and associated electrification
- super-fast broadband in urban areas (we should forget about anything outside one of the hubs and gateways and concentrate investment where it will gain return)
- energy alternatives.


Also, to assume they can keep INTO, SIPTU and IMPACT happy until 2020 without pay rises for public servants is dreamland

golfwallah

@Sand:

If there is a demand out there for office space and property allegedly in short supply in Dublin it might be solved by NAMA selling its vast portfolios at market price? Once that is done, then lets see the true demand out there.

I don’t disagree with this approach – government owns NAMA, which has been selling office space, and already has tax incentives in place to encourage commercial property deals, e.g. REITs (Real Estate Investment Trusts), which are not taxed on the rental income as long as they pay 85 per cent of it to their shareholders as a dividend.

And evidence of demand for commercial property is out there, with Facebook, Yahoo and Amazon expanding their office space: http://www.irishtimes.com/business/sectors/commercial-property/facebook-doubles-office-space-in-dublin-1.1569492

I would favour government reducing as many barriers as possible to attracting new businesses a lot more quickly. I take your point about office space but there is still the remaining problem with rising housing prices in Dublin, which many experts are putting down to shortage of supply. But additional demand and price rises are being stimulated by the incentive relief to CGT introduced in 2012. Government should work on reducing all barriers to growth (legal, planning, tax, etc.) – it’s the specifics we’re short on right now.

Here’s what the Medium Term Plan says about it: Page 14, under “Financing Living Standards”:

Barriers to growth will be identified and removed in the key sectors of our economy.

http://mtes2020.finance.gov.ie/wp-content/uploads/2013/12/MTES.pdf

maninasia

Suryavarman wrote: »

Construction activity spent a prolonged period of time above its long term average prior to the crash. Therefore it is to be expected that it will spend a period of time below that average to correct the over construction that occurred during the boom.



If there was such a need for new office space and housing then why aren't there any property developers out there building them? Surely there would be large profits to be made and any sensible property developer would see the benefit of constructing new office space and housing.

There is also the possibility that developers have examined the market and don't see any profit to be made from such projects. This would suggest that any efforts by the Government to artificially stimulate construction activity would result in unsustainable projects being undertaken.

You need to look at where is the need? The need is obvious in Dublin, which is the economic centre of Ireland and where most of the jobs are located.
Office space demand and rents and prices are going up rapidly, there is significant demand for new housing in the Dublin metro area. The problem is that credit is tight and many contractors are out of business so things will be slow to ramp up.

The government could be proactive to put credit to work in an effective and focused manner and bring employment numbers up and the number on social welfare down. Ex construction sector workers make up a large proportion of the unemployed. There is little to lose in helping to get the construction sector back on it's feet more quickly.

Similarly there are large unmet infrastructure needs such as the aforementioned Dart Interconnector and Metro North. These mostly have planning permission already and at least one project should be pursued with the utmost haste instead of wasting yet more time. A metro has been planned for Dublin since at least the 1960s, but the need has never been greater than now.

Mr. teddywinkles

Suryavarman wrote: »

The best way to recover from a recession caused by a construction bubble is to start another construction bubble? I think that might cause a problem.

But did it cause the problem or only part of it or a resultant? Cryptic I know.
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