Let’s not give our economy another lash – it’s time to slow things down

The Government should be in surplus already, and not facing a health overshoot, writes Colm McCarthy

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If the Government really believes that economic growth will continue at a reasonable pace into 2019 and 2020, it should be targeting a surplus in October’s Budget. Indeed after five straight years of sustained recovery the Budget should be in surplus already. Instead there has been another large overshoot on health spending in the first seven months of 2018 and the undemanding target for 2019 (yet another deficit, this time €350m) is under pressure.

Opposition parties are happily proposing expenditure increases and tax cuts while independent deputies who support the Government, including ministers, are filling the August news vacuum with assorted wheezes. The proposal to pay people for voluntarily minding their own families, in the form of €1,000 a year for grandparents, has been described by its progenitor, with refreshing candour, as ‘novel’.

Small economies are exposed to swings in international trade and to external political shocks. This makes it vital for them to preserve some policy ammunition for when things go wrong, things like a slowdown in their main trading partners, or Trump, or Brexit. Countries with their own currency have a range of short-term options: they can hold down interest rates and let the exchange rate take the strain, and they can run bigger government deficits for a while. Trying to do these things indefinitely is not a good idea – ask Argentina or Venezuela – but used sparingly they can smooth out the rough patches.

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