The most recent data released by various agencies indicates that fiscal austerity is not working. Unemployment in the Republic of Ireland is projected to remain close to 15% of the workforce in the immediate future while the level of domestic demand continues to contract or stagnate and the indications for export growth are not encouraging as Ireland's key trading partners enter a new recession. The crisis in public finances across Europe is not only linked to a crisis of market confidence and monetary stability: there is a crisis in the 'real economy' where aggregate demand is falling and long-term unemployment and personal, corporate and government debt is embedded. Given the unprecedented uncertainty in which European Union member states find themselves coupled with the risk of a new and prolonged depression across Europe we argue for a cautious fiscal stance, here, based on the principle of 'doing no further harm' allied to the urgent need to bring forward in the shortest possible time frame a programme of investment in priority infrastructure.
In this Quarterly we present the case for a movement towards fiscal sustainability through a balance of measures including:
- Initiation of a targeted, frontloaded and timely investment stimulus drawing on a mix of public, private and European Investment Bank funds;
- No further cuts in the overall level of discretionary voted capital and current expenditure;
- A medium-term reduction in public expenditure associated with high levels of unemployment and an increase in revenue buoyancy through growth-enhancing measures over time; and
- A closing of existing tax breaks and reliefs and a graduated and incremental increase in the average target tax-take for high-income households with the aim of reducing the government deficit to below 3% of GDP by 2017.