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Fiscal Responsibility Bill 2012: Second Stage (Resumed)

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Snippet Contents:

A part of this Bill I was drawn to, and on which I might agree with the previous speaker, concerns the Irish Fiscal Advisory Council, not necessarily the mechanics of setting it up but what the council has been saying and what has happened as a result. The Bill puts the advisory council on a statutory basis and it limits the Minister for Finance's power to fire members of the council, thereby strengthening its independence. "Independence" is the key word here. The council provides independent assessments of fiscal policy but the truth is that, so far, it has more or less been ignored and, ultimately, might always be ignored. The key point is that, to date, it has urged greater budget adjustments or, in other words, a front-loading of cuts in the last two budgets. The interesting point for me is that it has not been the only group to have done this.
Last Friday I noticed the Central Bank again cutting its growth forecast, which is something we are getting used to. I thought it would be no harm to take a look at the area of growth forecasting - who has been saying what, who has been most accurate and the usefulness of this exercise, particularly when it comes to the budget and the assumptions that are made and what we base budgets on. To start with the Department of Finance, in December 2010 the Department said we would have a 1.8% growth rate for 2011 but, by April 2011, that figure was down to 0.8%. At that time, it was probably the most upbeat of any forecast. In late May 2011, it was calling for a 2.8% growth rate for 2012. In July, Mr. Kevin Cardiff came into the Committee of Public Accounts and reiterated that figure. By November 2011, that was down to 1.6%, the following month it was down to 1.3% and by April of 2012 it landed at 0.75%. The reality is that in 2012 the Department was forced to lower its GDP forecasts three or four times.
As far as the Central Bank is concerned, in July 2011 it forecast a 2.1% growth rate for 2012. An important point is that around that time it advised the Government to make expenditure cuts rather than increase tax. One year later, it is advising the Government to increase the overall scale of fiscal correction, making the case for getting the adjustment over with more quickly. It is still doing this, which is a key point. To return to the projections, by October 2011 the 2.1% growth figure for 2012 was 1.8%. The Central Bank's explanation for this was a darkening international outlook. This was not atypical at the time and many groups were saying the same, and this sounds ominously like the IMF's position yesterday. Again, the Central Bank recommended an aggressive approach to deficit reduction and explained it was worried about the risk of negative shocks to the domestic economy.