The Governor of the Central Bank has criticised the Government’s revised budgetary strategy, warning it poses a greater risk to the public finances.
In a pre-budget letter to the Minister for Finance, Garbiel Makhlouf noted the Government’s recent Summer Economic Statement (SES) envisaged a sequence of much bigger deficits between now and 2025, culminating in a budget deficit of €7.4 billion in 2025.
This is €6.6 billion more than the original target set just three months earlier in the Stability Programme Update.
Mr Makhlouf said “higher permanent current expenditure” accounted for close to two thirds of this upward revision and would leave the Government’s debt ratio broadly unchanged – from what it is now – in 2025, 106 per cent of national income.
While noting the SES contained a committment to borrow only for capital investment from 2023 on and taking into account the favourable economic outlook and current low interest rate environment, the Governor warned, however, that the larger annual deficits out to 2025 – with higher debt – increased “the risk facing the public finances and the economy compared to a plan that targeted a quicker pace of debt reduction and lower debt”.
This is the first time the governor has responded to the Government’s revised budgetary plan.
Dump a plan
In the SES, Minister for Finance Paschal Donohoe appeared to dump a plan to gradually move towards a balanced budget in the wake of the pandemic, setting the State on an entirely different fiscal path.
The revised budgetary estimates anticipate an additional €18.8 billion in borrowing over the next five years, some of which will be used to fund housing construction and supports.
In his letter, Mr Makhlouf said the State had one of the highest debt ratios of any country in the industrialised world.
“Analysis by Central Bank staff shows that a scenario with higher levels of expenditure and a permanent loss in corporation tax receipts funded by additional debt would see the debt to GNI* (gross national income) ratio increase further from its current high levels out to the middle of this decade,” he said.
Higher debt levels would also limit the State’s response to future crises and would have implications for the State’s sovereign bond yields, in other words the State’s borrowing costs, the governor said.
He also warned that “in an economy already experiencing strong economic growth (as is currently projected), there is a risk that higher government spending and tax changes – as well as resulting in higher debt – could generate excessive inflationary pressures, leading to the emergence of damaging imbalances in the economy.”
Mr Makhlouf said the upcoming Budget should “signal clearly a sustainable path to a more resilient medium-term position for the public finances”.
This would require “clearly articulated sources of funding for permanent current expenditure increases”.
The Government has attracted criticism from the Irish Fiscal Advisory Council and others for funding seemingly permanent increases in spending via increased corporation tax receipts, which may not be permanent.
Measures such as broadening the tax base, reducing certain tax reliefs or changing certain tax rates, may be appropriate to achieve sustainable and balanced long-run growth, Mr Makhlouf said.
The governor suggested that “any revenue windfalls – whether from unexpected corporation tax receipts or the proceeds from the sale of bank shares, for example – should be used to reduce debt levels rather than fund extra expenditure.”
Mr Makhlouf said that as the near-term impact of the pandemic eases, the focus of policy should shift “from limiting the effects of the near-term shock to minimising supply constraints arising from labour market mismatches over the medium-term.”
This would more “targeted” labour market activation measures such as reskilling and training programmes to minimise “welfare traps”.
Remains found in Dublin adds intrigue to search for Robert Emmet’s grave
Skeletal remains have been found at one of the locations identified as a possible last resting place of Robert Emmet who was executed on this day in 1803.
The remains were found during an excavation at the back of St Paul’s Church in Stoneybatter in Dublin.
The disappearance of the body of Robert Emmet is one of the great mysteries of Irish history.
Emmet was tried and then hanged for instigating the ill-fated 1803 rebellion. He became a symbol of Irish martyrdom for his speech from the dock in which he concluded: “Let them and me rest in obscurity and peace, and my name remain uninscribed, until other times and other men can do justice to my character. When my country takes her place among the nations of the earth, then, and not till then, let my epitaph be written.”
After he was publicly hanged outside St Catherine’s Church in Thomas Street on September 20th, 1803, his head was displayed to the crowd by the hangman Thomas Galvin. The remains of Emmet’s body was taken to Bully’s Acre in the grounds of what is now the Royal Hospital Kilmainham and buried there.
When some of his friends went to reintern his remains from Bully’s Acre to St Michan’s Church in Church Street, a church associated with the United Irishmen, they found there was no body there, and so began a search which endures to this day.
His great-nephew Dr Thomas Addis Emmet requested an archaeological dig at the family vault in St Peter’s Church in Aungier Street to mark the centenary of Emmet’s death in 1903, but that proved to be unsuccessful.
St Paul’s Church is another contender in the saga of Emmet’s remains. It was the parish church of Kilmainham Gaol’s doctor and effective governor Dr Edward Trevor.
In his book In the Footsteps of Robert Emmet, JJ Reynolds speculated that Trevor removed Emmet’s body and put it in an unmarked grave in the grounds of St Paul’s Church. This was to ensure that his grave would not become a shrine for Irish nationalism.
The church, which was the venue for the consecration of the philosopher George Berkeley as Bishop of Cloyne in 1734, has been converted into the Spade Enterprise Centre, a not-for-profit social enterprise unit.
The land where the skeletal remains were found is being turned into a shared kitchen for small business enterprises in the area.
Archaeologist Franc Miles said burials in the grounds were from 1702 to the 1860s. A extant set of burial records remain, but Emmet, if he really is buried there, would have no record.
Previous exhumations were carried out when the graveyard was closed in 1860s to make way for a school on the site.
“With all the evacuations, we were left with bits and pieces of body. There weren’t many full skeletons,” he said.
Mr Miles said it all the gravemarkers and stones were removed in the 1860s “so all you are left with really are bones.”
Mr Miles said it would be difficult if not impossible to identify Emmet’s remains even if they are buried in the grounds of St Paul’s Church.
His own “educated guess” is that Emmet’s body is still buried somewhere in Bully’s Acre.
As many of his supporters have said over the last two centuries: “Do not look for him. His grave is Ireland.”
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Officials pushed for State to buy direct provision centres from private firms
The Government should buy a number of privately-owned direct provision centres as a “priority” as it would be more “cost effective” for the State to run the facilities for asylum seekers, international protection officials have said.
The savings arising from owning the accommodation centres rather than paying private contractors to do so “could be considerable”, departmental briefing documents provided to Minister for Children and Integration Roderic O’Gorman last year state.
The vast majority of direct provision centres are currently owned and run by private companies, with accommodation providers having received some €1.6 billion since 1999, including €183 million last year.
The latest figures show some 7,150 people are in the system of seven State-owned sites and 39 private centres. A further 24 commercially-owned premises are being used to provide emergency accommodation for asylum seekers.
The briefing document, released to The Irish Times under the Freedom of Information Act, says that housing people seeking asylum in State-owned centres would provide the “best protection from the vulnerability of present market reliance”.
“They are also much more cost efficient to run, and the State owns the asset,” it notes.
The document suggested that State centres should aim to accommodate 5,000 people, and “allowing the private sector to supply the rest is regarded as an achievable and reasonable target”.
The purchase of existing centres from private providers “to immediately boost the State’s footprint in this area should be considered as a priority,” the internal document said.
“Some service providers may be open to this and the market appears to be favourable at present,” it said.
The internal briefing suggested the department could then seek private companies or NGOs to run the centres, which would be a “competitive cost option”.
Ongoing maintenance for centres owned by the State was also “badly needed,” as current pressures on the Office of Public Works (OPW) meant it was not possible “for immediate repairs to be done if required”.
“In exploring the model of more State centres, we need to agree and acquire a capital budget,” the briefing stated.
“State land does not require planning permission for new centres as the Minister has a power under the Acts, whereby the OPW can grant the planning permission and this is usually a three-month process. It is not subject to appeal.”
The document says that State centres “can also have a bigger footprint as it will be a permanent fixture in the locality”. In recent years a number of plans for private providers to open direct provision centres in regional towns have been met with protests from locals and anti-immigration activists.
Mr O’Gorman’s department has sought to reform the direct provision system and is seeking to replace the network of centres with a new system of accommodation and supports by the end of 2024.
A department spokesman confirmed the State has not bought any new centres since the briefing note was written. The spokesman said under the planned overhaul of direct provision, asylum-seekers who arrived into the country would initially be housed in a number of reception and integration centres.
Asylum-seekers will spend a maximum of four months in the reception centres before moving into housing secured through Approved Housing Bodies.
“These centres will be State-owned and purpose built to provide suitable accommodation for approximately 2,000 people at any one time, to cater for the flow-through of the 3,500 applicants over a 12-month period,” he said.
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