Séamus Coffey: "We need a legislative commitment to limit the increase in spending"

I was thinking about this in the context of the mad spending promised by both parties in the UK General Election and a likely auction in our next General Election.

Séamus Coffey has an article in the Indo.


This is the bit which I find most shocking:

It could be said that 1976 was the last time the fiscal stance was appropriate from both the budgetary and economic perspectives at the same time.

And I like this proposal:

A legislative commitment to limit the increases in net policy spending to the medium-term growth rate of the economy, plus inflation, would be far better than an informal target to deliver a particular budget balance in a particular year.

Thinking about spending, and especially investment in the economy, (teachers salaries for example, are statistically spending, but in reality I suggest investment) and the looming pensions crisis suggests that to 'limit the increases in net policy spending to the medium-term growth rate of the economy, plus inflation,' might not be a good idea.

If we do not grow the productive capacity of the economy we will not be able to afford future pensions. While increased public spending and investment may well fail to grow the economy, lack of investment certainly will.

Investment is the purchase of new fixed capital stock.

Salaries are not investment.

Protocol said:

Investment is the purchase of new fixed capital stock.

Salaries are not investment.

Click to expand...

Human capital is difficult to account for, but is the single greatest explanatory factor in cross-country income differentials.

Otherwise, Coffey's proposal is sensible, but doesn't solve the problem of estimating the medium-term growth rate of the economy.

cremeegg said:

(teachers salaries for example, are statistically spending, but in reality I suggest investment)

Click to expand...

The same argument could be made about any current spending. Most teaching is replacing knowledge lost by people who are dying.

You could argue that building schools is investment. But not paying teachers.

cremeegg said:

If we do not grow the productive capacity of the economy we will not be able to afford future pensions.

Click to expand...

He does say

"This does not mean a government's hands are tied on the rate at which it can change nominal spending, or the level of spending it wants to achieve. If there are further spending priorities, the capacity to increase spending can be expanded with tax rises that provide sustainable revenue streams. Any spending rule should assess the net impact incorporating both spending and tax changes."

Or if we are to spend more of a fixed pot on teachers' salaries or pensions that means less is available for other areas. It's all about choices!

Brendan Burgess said:

The same argument could be made about any current spending. Most teaching is replacing knowledge lost by people who are dying.

You could argue that building schools is investment. But not paying teachers.

Click to expand...

I hope, and I believe, that young people today are learning skills their grandparents never had, and that a greater proportion of young people are being educated to their capacity. Skills that will allow the productive capacity of the economy to expand.

Brendan Burgess said:

Or if we are to spend more of a fixed pot on teachers' salaries or pensions that means less is available for other areas. It's all about choices!

Click to expand...

If we spend money on healthcare and give people an extra 5 years of life that does nothing to increase the productive capacity of the economy. If we educate young people to an incrementally higher level that expands the productive capacity of the economy for a working generation.

The proposals outlined in the article are laudable, but I fear it fails to face two critical factors which, if it did, would bring the proposals back to the drawing board

- We have given up our monetary sovereignty to the Euro. While fiscal prudence is laudable, our financial circumstances are now broadly out of our hands regardless of any best efforts or intentions.
Since joining the euro, our economy has experienced one of the greatest economic expansions of modern times - 'Celtic Tiger'.
It has experienced one of the greatest economic crashes of modern times, and arguably, one of the greatest economic recoveries of all times - "Leprechaun Economics".
It is simply, to my mind, more to do with international economic affairs concerning the Euro, and the economies of Germany, US, UK and France, than anything to do with over runs with Childrens hospitals, Teachers wages, over-sized printers (albeit they are not insignificant nor to be dismissed).

- No administration, in their right mind, will ever legislate to handcuff themselves to such fiscal constraints. Why would they?
Even if they did, in a democracy they could still get kicked out of power, and then what? They blame the legislation that restricted their spending!
And as for enforcing it such constraints, who would be held responsible, and what penalty? The Minister of Finance? The whole cabinet?? Or, the self-defeating mechanism of the Irish taxpayer???
And if the Irish state, was to fine the Irish taxpayer, who would receive the fines?