As has been well documented on this forum, our looming budget deficit is of serious concern. The latest estimates state that the figure is of the order of €20bn. This is about €16,000 per household.
Our Constitution enshrines the position of the Comptroller and Auditor General. This is an independent authority to investigate wasteful public expenditure. Rather understandably, governments don't do a very good job at investigating their mis-management and thus independence is mandated. A similar, though far more important, principle of independence is maintained by the judiciary.
Over the past twenty years or so, it has become increasingly apparent that independent central banks keep inflation lower than those under government control:
Consequently there has been much reform to remove the minting machines from the hands of the government. Blair did it as soon as he took power, and it is best typified by European Monetary Union.
It seems the only place governments maintain free reign is in fiscal policy. This has advantages -- taxation and expenditure are extremely sensitive, political issues that should be processed through the democratic mechanism. However it is also inherently problematic. Frank Barry recently bemoaned the government's failure to oversee our public finances, and I look forward to Morgan Kelly spouting off about the government buying a failing bank.
I'm going to sleep on it, but I think there may well be a serious case for an independent fiscal authority. They should, of course, have only limited control over fiscal policy. However, given the dire state of our national finances, who are the government to say they should maintain responsibility. Both An Taoiseach and the Minister for Finance have been in government for the past ten years, overseeing one of the largest booms ever in the Western World. Two years ago the then-Tánaiste said we "did not need" the billions of euro of stamp-duty revenue. Eighteen months ago the then-Taoiseach suggested economists who predicted a collapse in the housing market should "go jump off a bridge". The ESRI's John FitzGerald and the aforementioned Morgan Kelly, among others, have been warning about the fragility of the government finances for several years. Journalists, less rigorous in their methods, have been predicting similar for even longer. Who is Brian Lenihan to suggest he should maintain complete control over our fiscal policy?
Who can argue that it would not be beneficial for this fiscal authority to have the power to prevent a large (>€100m) item of expenditure before it becomes a great waste? Who can argue that, in light of the government blindly ignoring economic advice, that some formal preventative measures should not exist? Who can argue that the government's wanton disregard for the realities of the business cycle does not provide support for an agency with the power to block tax cuts? Why do we not have somebody with the power to force the government to take note of the wall it is about to drive into?
It seems to me that the one lesson we have really learned over the past year is that the government cannot manage the affairs of this state properly, and it should at least do the decent thing to prevent such a ridiculous situation emerging again.
an algorithm could run both fiscal and monetary policy!!!!!
Just to add: The Swedish Fiscal Policy Council is an independent review body that activly criticises government fiscal policy. It's not in direct control of fiscal policy, which is what The Economist is calling for (I think). Their website is here, and read their first (summary) report here (PDF, English); it gives some information on the body's purpose.
We might have thought the Maastricht criteria for entry to the Euro, was to some extent, what you are suggesting, but it seems that was not so set in stone after all further down the line.
But the idea is sound, what good is a government if it can't run balanced books. We can't even argue that our deficit has the good of an Obama style targeted fiscal stimulus.
I'd take the idea further and extend it to bank regulation to prevent funding future unsustainable property booms too and whatever it takes to regulate for the prevention of the financial products that started this whole mess.
I certainly think the days of laissez-faire regulation are dead and buried for a generation at least.
Philosopher kings, no?
hmmm an electronic gold standard. I guess you will always end up with a Nixon type character that wants to fight a war but doesnt have the stones to be honest and tax to do it so the leading countries will always find a way of changing the rules
Very interesting point, just two things stand out for me.
Firstly, the main goal of this agency would be to reign in spending when times are good, in order to prevent the build up of excess that we are currently going through. However, people have short memories and I could see the agency taking heavy flak for 'retarding the potential of Ireland' or some similar clever little slogans.
Secondly, if you impose hard limits on spending, where excess of these limits triggers an independent investigation you may find yourself in a death by a though cuts situation, where proposals are restructured to get around the limit.
But a very interesting point and one that should hopefully be popping up at higher levels.
Apologies for bumping an old thread, but our dear leader was correct a year ago, and now Philip Lane strikes a similar note in today's Irish Times:
I never liked admitting it, but I also thought was Philip as a little bit slower than me. Glad to see he's not that far behind.
Read the Lane article a few weeks ago. There was some regressional analysis alright about how countries with a said council have more stable public finances.
I guess how these people are chosen is going to be an issue, they need to be independent but at the same time it could be a hard sale to some members of the public if you had an unelected Fiscal Council advising the goverment to cut spending in sensitive areas etc.
I am not aware of any country where the gov't of the day cannot remove the head of the Central Bank or members of the board if it is deemed to be in the best interest of the country. The head of the Central Bank has a duty in all countries to brief the gov't of the day frequently, routinely and at 3:00 a.m. if necessary. The reverse side of that coin is the Minister of Finance has a duty to brief the head of the Central Bank in a similar manner. "Independence" is highly nuanced in all countries. In the case of Ireland it would not matter how you structured the governance it would still be the same inbred, political clique in charge. Intimidating the head of the Central Bank is something most Governments get accused of in bad times.
Best thing is for said council to suggest overall numbers, i.e. a target surplus etc and let the politicians deal with the political issue of how to apportion the given limit between various good causes etc.
How would a total target be set? based on the level of interest repayments?
Barn door and horse bolted comes to mind. Surely 10 years ago was the time to make these kind of decisions.
Given that alot of EU countires will have Debt to GDP over 90% over the next 5 years and then lets be positive and say that they claw their way back to 60% over the decade following that. Where will the opportunity come from to hive away structural surpluses? By then negetive demographics eects will be kicking in, there will be a pensions crises and then some brainiac will suggest that public welfare liabilities should be funded going forward to preserve medium term fiscal stability?
Ideally against tax revenue stress test scenarios so as to offset against future potential bad years. It'd be a very complex and unfortunately imprescise undertaking though with plenty of room for debating for more or less surplus during the good years etc.