Policy making must abandon ‘Business As Usual’

Economy, Guest Blog | Thu 9 Apr | Author – Business & Finance
war on talent

Marc Coleman, economist and founder of Octavian Consulting, outlines his seven point plan on how best to tackle the crisis. 

The thing about strategy in a crisis is this: It is better to have one and not need it than need one and not have it. Octavian has drafted an emergency plan to tackle the crisis which can be viewed here. The key points of the plan, which aims to complement government measures to date, are set out below.

Firstly, the aim must be a V rather than a U-shaped recovery. Targeted on sectors where the last recession was prolonged and the recent recovery delayed (indigenous businesses and taxpayers) is essential to achieve this. These sectors are most vulnerable and yet will be expected to do the lion’s share of the work of recovery and tax regeneration. To date they have lacked voice and political power and this has distorted policy narratives in ways that needed re-balancing anyway (as the book explains). Re-balancing that distortion will help channel demand where most needed. In a nutshell, the best way to stave off austerity is to finally end the last austerity as it still applies to the risk takers and job creators –  and the taxpayers whose demand for their goods and services determine their success. By the way the fact that the temporary wage subsidiary scheme excludes workers who earn over €76,000 is highly unfair as this segment of taxpayers generate a substantially larger share of income tax revenue.

Secondly, two budgets will be needed this year. A budget in June is needed to recapitalise small business past the end of lockdown and to stimulate demand. The second, in October, should begin the long process of correcting under-investment in housing.

Both budgets should amount to € 8 billion (4 per cent of GNI*) apiece and the first one should be split roughly evenly (€4 billion each) towards recapitalisation and boosting demand.  The October budget should target additional capital spending of €8 billion (4 per cent of GNI*) and be funded by capital borrowing the leeway for which needs to be negotiated with Brussels over the summer.

It cannot be stressed enough that two budgets are needed. And those two budgets must not be the usual political compromises. For jobs and the economy to return to “Business as Usual”, policy making must abandon “Business as Usual”. Professionally designed, clearly focused and precisely implemented these budgets.

For jobs and the economy to return to “Business as Usual”, policy making must abandon “Business as Usual”. Professionally designed, clearly focused and precisely implemented these budgets. 

Thirdly, the first budget must overwhelmingly concentrate stimulus where it is most needed: The indigenous Household and private sector suffering job and income loss. In the last five years of recovery the very small reduction in net taxes (direct and indirect) as shown in successive Budget documentation totaled €0.7 billion compared to €16 billion in spending increases (2015-2020). But governments elected in 2011 and 2016 promising to maintain at least a one-for-one balance. Correcting this imbalance is not just politically fair. It is now also economically urgent.

In a nutshell, the best way to stave off austerity is to finally end the last austerity as it still applies to the risk takers and job creators and the taxpayers whose demand for their goods and services determine their success.

Fourthly, at 100 per cent of GNI* our government debt ratio is too high (mercifully though at least private sector indebtedness is in aggregate terms much lower than before the last crisis). Approximately one sixth of this relates to the legacy of the bank bail-out, an event that the subsequent design of the Single Resolution Mechanism by the EU was designed to prevent in future. Ireland deserves a hearing on this and such a hearing could make the difference between having the leeway to stimulate a recovery or not. Operating in the 80 to 100 per cent zone – which for a young growing country like Ireland is tolerable – is far better than the 100 to 120 per cent zone.

The Fifth point is that the Multinational and SME sector must cooperate more. The sixth is that global policy cooperation needs to resume. The seventh, is that senior policy makers and advisors must count amongst their ranks more of those who have worked in and understand those whose risk taking generates the tax income that funds the state and who will suffer by far the greatest consequences of this crisis. Otherwise, the last election may look like a walk in the park compared to the next one.

For Coleman’s weekly updates see Businessandfinance.com

Marc Coleman is Founder of Octavian Public Affairs Economics and Advisory consultancy www.octavian.ie  A former European Central Bank economist and Irish Times Economics Editor, Marc predicted the last recession in The Irish Times (6th July 2006) authored 4 books narrating the causes of the crisis and accurately predicting recovery, population growth and our current housing need. He more recently worked as Director of Financial Services Ireland with Ibec and holds a scholarship MBA from the Smurfit Business School.