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Minister Paschal Donohue TD launches DCU Anti-Corruption Research Centre (ARC)

Corruption, and the impact it has on society, is the focus of the newly established Anti-Corruption research centre at DCU. The Centre is aiming to devise solutions and strategies to address a global issue that is estimated to cost almost $4 trillion dollars annually in bribes and stolen money, not to mention the devastating social and economic consequences for communities across the world.

The Anti-Corruption Research Centre (ARC) is Ireland’s first academic research centre dedicated to research, policy and education on corruption and anti-corruption with the aim of tackling an international issue, which according to United Nations Secretary General António Guterres “is a problem that is present in all nations, rich and poor.”

 

Co-directed by Dr Michael Breen of DCU’s School of Law and Government and Dr Rob Gillanders of DCU Business School, ARC’s mission is to advance our understanding of the causes and consequences of corruption and support the development of new anti-corruption policies and initiatives, in Ireland and abroad. It will bring together researchers from law, political science, business, economics and accounting to examine the causes and consequences of corruption and to support the development of new anti-corruption practices in Ireland and abroad.

 

It will also develop executive education and CPD programmes as well as engaging with civil society, media and policymakers

 

Speaking at the virtual launch, Minister for Finance Paschal Donohue TD said

 

“[It is] important  that we research and understand the effect and causes of corruption on political life and we use this to better inform policy making in this area. I look forward to it informing the work that we do here at home and abroad, in the work that Ireland can do, in combating corruption, and critically, in combating the consequences that corruption can have on public and political life.”

 

Prof Elizabeth David Barett , Director of the Centre for the Study of Corruption, University of Sussex, Irish Examiner journalist Mick Clifford, Chief Executive of Transparency International John Devitt, DCU’s Dr Vicky Conway and Dr Amadou Boly , Special Assistant to the Vice-President & Chief Economist with the African Development Bank also spoke at the virtual launch.

 

The President of DCU, Prof Brian MacCraith said, 

 

“Corruption is a complex problem that imposes an enormous cost on citizens and societies, right across the globe both in direct economic terms and in terms of the quality of life. The creation of this new centre is a recognition of the complexity of the challenge. By supporting new interdisciplinary collaborations, ARC will amplify the impact of the excellent research already being conducted by DCU researchers.

 

The centre reflects DCU’s mission to ‘transform lives and societies’ and we expect it to have a positive influence on public policy in Ireland and internationally.”

 

Dr Rob Gillanders, co-director of the Anti-Corruption Research Centre said, 

 

“Corruption undermines economic and social progress by simultaneously driving down innovation and investment and driving up poverty and inequality.

 

We hope that ARC will deepen our understanding of corruption and lead to the development of effective anti-corruption interventions and strategies.”

Dr Michael Breen, co-director of the Anti-Corruption Research Centre said, 

 

“The Covid-19 crisis has substantially raised the risk of corruption in Ireland and elsewhere. This centre will help us to address this risk, and work to strengthen Ireland’s anti-corruption regime.”

 

The ARC website is now live at https://www.dcu.ie/arc/

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DCU MBA Blog: Brexit Brief

This is a guide to the main points relating to the Brexit situation by Anthony Foley, Senior Lecturer in Economics, DCU Business School.

 1. The UK has voted to leave the EU. This necessitates the establishment of a new set of rules governing movement of goods, services, capital and people between the UK and the rest of the EU. In addition it will affect a wide range of other issues e.g. Irish student access to UK universities and fees. The Brexit vote was exclusively about staying or leaving; there was no vote on alternative post-Brexit regimes. The Brexit side does not have a unified view on what should replace the EU membership rules. The EU side is also weak on the details of a post membership situation.

2. The new set of economic relationship rules are unknown and uncertain and will derive from negotiations between the EU as a whole and the UK. There is no guarantee that the negotiations will be friendly and designed to minimise economic disruption. They may be grudging and spiteful. One view is that the EU will offer a poor deal on economic relations to discourage other member states from leaving.

3. The exit timescale is related to Article 50 of the Treaty. A member which  decides to leave notifies the European Council of its intent. The European Council then initiates negotiation on the withdrawal arrangements and the future relationship with the EU. This agreement will be arrived at by the qualified majority system at the Council and with the consent of the European Parliament.

4. The exiting state will cease to be an EU member from the date of entry into force of the agreement  (as negotiated) or failing that, two years after the notification of the intention to leave. However, the European Council, acting unanimously, in agreement with the exiting state can extend the period beyond 2 years (with no time limit)

5. The UK government has not yet notified the European Council. The UK prime minister is resigning with effect from October and has stated that it should be the responsibility of his successor to notify the European Council. Some EU senior officials have argued that the UK should notify immediately to speed up the process but there is no legal obligation for the notification to come within a specific time period and this demand has been dropped. It could well be the case that the notification will be a long time coming, even after October, (or maybe never, if circumstances arise that persuade the UK government and parliament to ignore or rerun the referendum).

6. There is enormous uncertainty about the detail of a post exit situation, there is uncertainty about what the UK government will want (and be willing to concede ), there is uncertainty about the negotiating position of the EU (punish the UK or minimise changes in the economic relations), there is uncertainty about the time scale of the process and finally there is great uncertainty about the economic effects of whatever is agreed.

7. The eventual deal will probably have to be approved by the UK parliament and currently the House of Commons is anti-Brexit by a large majority. The final deal may well fall far short of what the Brexit supporters currently expect.

8. The EU has a high degree of economic integration and the Single Market allows the free (or nearly free) mobility of goods, services, capital and labour. The EU and the Brexit side are in favour of free trade. The Brexit side would happily accept the three freedoms of goods, services and capital but are strongly against free movement of labour and people. It is unlikely that the EU would allow continuing full access to the single market for goods, services and capital without labour freedom. This is likely to be the main sticking point in negotiations on a new economic relationship.

9. Membership of the European Economic Area has been identified as a possible post EU regime. Norway is currently in this position. But full membership of the EEA includes mobility of people and also a significant contribution to the EU budget. Alternatively the UK might relate to the EU in much the same way as does China, Russia or the USA at present. This would not include labour mobility but also includes much lower trade liberalisation in services including financial services which the UK does not want.

10. Brexit has two effects. It has generated enormous uncertainty as to future EU/UK economic rules of engagement. This has had a negative impact, and will have a continuing impact, on sterling, stock markets, investment decisions, consumer decisions and overall economic confidence. The second effect is that when the uncertainty is gone (which may be a long time away) the rules governing economic relationships will be different and this will affect business models, market access and transactions costs of UK related business. How different, depends on the details of the new agreement.

11. Brexit will worsen the UK economic performance in the immediate and short term. This will reduce its demand for imports which will hit Irish exporters. This will, in turn, reduce the Irish growth performance.

12. The new deal will be negotiated by the EU as an entity. While Ireland will have an input into the EU negotiating position (and it may be a strong input reflecting our particular political, social and economic relationship with the UK), the final deal will not necessarily reflect all of the Irish concerns. For example, the EU may not be willing to allow a common travel area between the UK and Ireland if the UK will not allow the same mobility of people from elsewhere in the EU).

13. Brexit has caused a large decline in Sterling which is likely to persist, to some extent, for some time if not long term. A much lower Sterling reduces the competitiveness of exports from Ireland to the UK and improves the competitiveness of imports from the UK. Consumers may benefit from the latter but Irish producers competing on the domestic market will lose out. A lower value of Sterling also reduces the attractiveness of Ireland for UK tourists. Fluctuations in the exchange rate with Sterling are not a new phenomenon for the Irish economy but the Brexit related decline is large and likely to be long lasting.

14. As noted in a previous blog a likely positive for the Irish economy is the reduction in the attractiveness of the UK as a centre for servicing the EU single market for both inward foreign investment and domestic UK enterprises because of the likely reduction in ease of access between the EU and the UK depending on the eventual deal. Ireland stands willing and able to give a new English-speaking home to these projects. On the negative side, the UK will have more freedom to improve its tax attractiveness for these projects. Ireland’s increased attractiveness as an English speaking business-friendly location relative to a UK which is outside the EU has substantial economic potential.

15. There is an overall short term negative economic impact arising from the uncertainty which will reduce Ireland’s growth performance. The decline in sterling is likely to be long lasting with its associated negative economic effects ranging from lower inward tourism, increased cross border shopping, reduced exports and increased imports. The ongoing uncertainty will reduce investor and consumer confidence. However, we are still a long way from tariffs, quotas, labour permits, visas, border controls and additional documentation in our economic relationships with the UK.

 

Anthony Foley is Senior Lecturer in Economics in DCU Business School, and lectures on the Executive MBA Programme.

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DCU MBA Blog: Brexit – Economic Effects on Ireland and the Drinks Industry

By Anthony Foley, Senior Lecturer in Economics, DCU Business School

This blog post examines the Brexit impact on the Irish drinks sector but I should start with some clarifying comments. I am convinced by economic analysis that a UK exit from the EU would have a negative economic impact on the global economy, the UK economy and the Irish economy. Ireland and the UK have very strong economic flows in imports, exports, travel and tourism, people and finance. There would also be particular political and social negatives for Ireland because of the Republic/Northern Ireland relationship and the possible termination of the long standing common labour market between Ireland and the UK. The scale of the negative economic effect will depend on the speed, certainty and content of the necessary new trade deal between the UK and the EU, and the UK and the rest of the world.

Very little campaign discussion and debate has taken place on the likely nature of a post exit relationship. Indeed there is not a common position within the Brexit Campaign on the desirable replacement of the existing trade relationship. In addition, there is the added complication that the majority of the UK Commons are against Brexit and that presumably the Commons would have to approve the new deal. Elements of a new deal might disappoint many who would have voted for Brexit. Despite my conviction that Brexit would have negative effects and the uncertainty associated with the post Brexit situation, I must declare that, if I was a voter in the UK referendum, I would vote for exit. This reflects political factors, notably a lack of desire on my part to have an ever closer political union (even though the reform deal allows the UK to “opt out” of ever closer union). I recognise that economic integration brings economic and social benefits and that a degree of political integration is needed to facilitate economic integration but I would prefer the political integration to be minimised and to focus more on inter-government agreements.

There has been much discussion and coverage of the overall economic impact of Brexit on Ireland but relatively little discussion of the impact on specific sectors. This note deals with Brexit and the Irish drinks industry. Brexit will have a negative impact on the Irish drinks industry. It will worsen conditions for trade with the UK. Depending on the details of a new, as of now unknown, trade relationship and agreement between the UK and the EU, new trade regulations and barriers will increase costs for both importers and exporters. This will be a particular problem for small drinks enterprises such as the new craft breweries and small distilleries which may target the UK as an initial export market because of its proximity and similarities. In addition, Sterling has already declined in value because of overall concerns with Brexit in the foreign exchange and financial markets and this will continue and accelerate if the UK votes to leave the EU.

A declining Sterling reduces the competitiveness of exports from Ireland to the UK and improves the competitiveness of imports from the UK. Consumers may benefit from the latter but Irish drinks producers competing on the domestic market will lose out. However, fluctuations in the exchange rate with Sterling are not a new phenomenon for the Irish drinks industry.  The drinks industry has a substantial volume of trade with the UK but the industry, notably in liqueurs and whiskey, has generated substantial export sales in non EU markets which do not have the much easier market access of the EU and EEA countries.

In addition, Brexit is expected to have, and is currently having, an immediate and short term negative impact on the level of UK economic activity which reduces the UK demand for imported products and services. A continuing long term negative overall economic effect on the UK economy is expected from Brexit but this is less certain and depends on how the UK uses its increased policy scope and freedom over the next few years and on the trade deal negotiated with the EU. There may also be a wider negative Brexit effect whereby the uncertainty raised by Brexit, for example, on the future maintenance of the EU, has a global negative economic effect resulting in lower growth and lower levels of economic activity. However, this can be minimised by a speedy determination of the new trade and economic relationship between the EU and the UK.

The Irish drinks industry generated exports of €1241.8 million in 2015, of which €314.4 million or 25% went to the United Kingdom. €224.8 million was sold to Britain and €89.6 million was sold to Northern Ireland. The largest national market for Irish drinks exports is the United States with €485.4 million or 39%. Britain is our second largest national market for drinks exports and Northern Ireland is our third largest. The UK market share of 25% for drinks exports compares to a UK share of 14% for total Irish merchandise exports. The drinks exports are more dependent on the UK market than overall exports. Individual drinks products such as soft drinks and cider are particularly reliant on the UK market, much more so than the average drinks situation, as referred to below.

Drinks imports were €785.1 million in 2015 of which the UK provided €305.8 million or 39%. The UK provided 27% of our total imports resulting in drinks imports being more UK focused than overall imports. Britain provided €273.3 million in drinks imports and Northern Ireland €32.5 million. Britain is by far, the largest source of drinks imports followed by France with €89.2 million. By contrast, the USA provided only €18.2 million in imports compared to the UK €305.8 million. The UK imports include products produced in the UK and products produced elsewhere but distributed from the UK.  Adding imports and exports, Irish drinks international trade was €2026.9 million in 2015, of which the UK accounted for €620.2 million or 30.6%.

The sectoral drinks export dependence on the UK/British market is shown in the table  below. There are very substantial differences between different beverage types with consequent different levels of Brexit-related impact.

UK role in individual Irish exports of beverages 2015

beverageExports € million Exports to UK € millionUK share %
Soft drinks132.4107.881.4
Cider56.940.2 (Britain only)70.7
Beer282.9121.643.0
Whiskey443.919.1 (Britain only)4.3
Other spirits (mainly liqueurs)313.213.5 (Britain only)4.3

Source.  CSO Trade Statistics

Soft drinks exports are very reliant on the UK market and hence are particularly vulnerable to the negative effects of Brexit. 81.4% of soft drinks exports are sold on the UK market. The same is true of cider, 70.7% of cider exports are sold in the British market. Beer has a much lower but still high share of its exports sold in the UK market, 43%.

The situation is completely different for whiskey and liqueurs. Whiskey has been the drinks export growth story of the past few years but the UK has contributed little to it. Of €443.9 million in whiskey exports, only €19.1 million or 4.3% is sold in the British market. 65% of Ireland’s whiskey exports are sold in markets outside the EU. The USA on its own accounts for €233.7 million or 52.6% of total whiskey exports compared to the British 4.3% share. In the liqueurs category Britain accounts for only 4.3% of exports, the same as whiskey. Non-EU markets absorb 78.4% of Irelands liqueur exports compared to Britain’s 4.3% share. The USA absorbs €163.8 million or 52.3% of total Irish liqueur exports.

Within the drinks export sector soft drinks and cider are very exposed to the UK market, beer is also significantly exposed to the UK but whiskey and liqueurs have a small degree of exposure to the British market.

On the import side, soft drinks accounted for €248.9 million of which Britain supplied €173.0 million or 69.5%. There was €233.0 million of wine imports (excluding sparkling wine) of which Britain supplied €14.6 million or 6.3%. Britain supplied €33.6 million of beer imports or 24.2% of the total of €138.7 million. Whiskey imports were only €15.6 million of which Britain supplied €6.4 million or 41.0%. Imports of other spirits and liqueurs amounted to €59.9 million of which Britain supplied €16.2 million and Northern Ireland €23.8 million. The UK share was 66.8%.

Overall, the British or UK sourced drinks imports were soft drinks €173.0 million, beer €33.6 million, whiskey €6.4 million, liqueurs €40.0 million and wine €14.6 million. The increased competitiveness advantage of UK drinks imports into Ireland will be most felt by domestic producers of soft drinks and, to a lesser extent, beer producers.

It is definite, in my opinion, that the short term and current economic impact of Brexit will be negative for Ireland and the drinks industry, and indeed negative for the UK economy. There will be lower UK economic activity, Sterling is declining relative to the euro which reduces Irish trade competitiveness and trade costs and regulation cost will be higher. However, a weaker Sterling improves UK export competitiveness. It is less certain that the longer term performance of the UK economy under Brexit will be definitely worse than if the UK stays in the EU. Much will depend on how the UK government uses its increased policy discretion.  The Brexit campaign has been relatively quiet on what it would do with the increased policy independence.  The scale of the negative impact will depend on the speed and detail of the new UK/EU trade and economic relationship but it is very likely that a reasonable new trade deal will be done with a low impact on trade transaction costs. While some Irish drinks enterprises and sectors will be significantly hit by the direct and indirect effects of Brexit, others such as whiskey, have very limited direct exposure to the UK economy.

Apart from the export/import issues discussed above, Ireland and the drinks industry will have a strong interest in the details of new arrangements for border/customs control, tariffs, regulations, labour mobility, work visas, security and foreign investment. Unfortunately, Ireland will not negotiate this new relationship with the UK. It will be done by the EU as a whole and, while Ireland will have an input, the eventual agreement will reflect the overall EU position. Ireland engages in high volumes of trade with countries outside the EU; the drinks industry has established substantial sectoral markets outside the EU. Membership of the EU is not a necessary condition to develop drinks exports but clearly, the lower the trade barriers the easier is the task. Brexit is not equivalent to termination of economic relations. Brexit will not result in isolation of the UK economy. There will be a new trade relationship between the UK and the EU, as there is a trade relationship between the EU and other economies in the global economy.  The negative economic impact of a Brexit can be minimised and kept low by a speedy agreement on the “new” relationship.

Anthony Foley is Senior Lecturer in Economics in DCU Business School, and lectures on the Executive MBA Programme.

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Tony Foley Delivers Keynote State of The Economy Talk

Tony Foley, senior lecturer in economics in DCUBS, delivers a keynote state of the economy talk entitled “Is Ireland out of the economic woods?” to the annual Conference of the Hardware Association of Ireland today, Thursday 7th April in the Lyrath Estate Hotel, Kilkenny.

In the talk Foley concludes…

While the economy is out of the woods in terms of the 2008 collapse, it still faces the ongoing economy management issues faced by all economies with two significant additional Irish elements; how do we have a good public services society with a tax system which which encourages enterprise and initiative and how do we cope with the pent-up demand for higher incomes and better living standards. In the context of the recent election terminology of a fairer and more economically inclusive Ireland and sharing the recovery, Foley concludes that this objective will require more resources than are likely to be available from the fiscal space over the next few years and especially in the next two years. Future economic management will be difficult because raised expectations will be difficult or impossible to be realised.

Tony Foley is Senior Lecturer in Economics in DCU Business School, and lectures on the Executive MBA Programme.

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DCU Business School 2016 Phd Scholarships

DCU Business School invites applications for PhD scholarships. These scholarships will provide support for fulltime PhD study and are open to applicants who students register in Year 1 of the full time PhD programme in the Business School in DCU in September/October 2016. Our PhD programme combines scholarly theory-building with a strong applied focus. Research scholars work under the supervision of an academic expert and are an important part of DCU Business School’s vibrant research community.

The scholarships will allow to undertake research in one of the following specialist disciplines:

  • Accounting
  • Economics, Finance, Entrepreneurship
  • Human Resource Management and Organisational Psychology
  • Management, Operations, Information Systems
  • Marketing

For full details, please view the guidelines for applicants.

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DCU MBA Blog: Fiscal Space Odyssey – Facts and Myths

As we all know, Ireland’s public finances must meet specific EU and domestic fiscal rules on annual deficits, expenditure growth and debt reduction. Fiscal space refers to the projected or forecast amount of money available to the Government over a period of time for extra spending and/or tax reductions while ensuring that the overall fiscal rules are met. In the bad old days of cutbacks the relevant and opposite phrase was fiscal consolidation which meant the amount of expenditure reduction and/or tax increases needed to reduce borrowing over a particular period. The amount, probability and use of the available fiscal space were major issues in the recent general election.

In the election discussion the fiscal space refers to the five years from 2017 to 2021. Most of the projected fiscal space money occurs later in the period. Of the much quoted total figure of €8.6 billion, €5.7 billion or 66% arises in 2020 and 2021. Only €0.6 billion is in 2017 and €1.1b is in 2018. The 2019 level is €1.3 billion. We will have to wait a while for most of the fiscal space goodies. If the EU changes, as expected, our annual borrowing or deficit rule we will have another €1.5 billion which will arise in 2019.

The fiscal space money is not certain. It is not sitting in a bank waiting to be withdrawn. It depends on the achievement of solid economic and employment growth over the next five years. If the economy performs weaker than forecast there will be less fiscal space money available. The fiscal space calculation is based on an assumption of GDP growth of 3.5% in 2017 and around 3% for each of 2018 to 2021.

So, the fiscal space is a forecast amount of money and therefore uncertain; it depends on reasonable economic growth and other economic performance up to 2021. Even if the forecast turns out to be correct, the bulk of the fiscal space will arrive in 2020 and 2021 with much less in 2017 and 2018.

There are several different concepts, definitions and estimates of the fiscal space ranging from €14.2 billion to €3.2 billion which cause problems for a wide understanding of the issue.. This range gives space for much argument as was seen in the election campaign. All of the estimates are valid methodologically but are based on different interpretations, inclusions/exclusions and assumptions.

The €8.6 billion estimate is based on achieving a deficit of 0% but, as mentioned, there is a strong likelihood that we will be allowed a deficit of 0.5% by the EU, instead of 0%. This would give us another €1.5 billion of fiscal space and would arise in 2019. Therefore the fiscal space could be €8.6 billion plus €1.5 billion, or the €10.1 billion which appears, for example, in the FG election economic plan.

The original €8.6 billion was estimated by the department of finance and details are in tables A.8 and A.9 of the 2016 Economic and Fiscal Outlook. To arrive at the figure the department estimated the requirements to meet the fiscal rules between 2017 and 2021 based on our projected economic performance. It then calculated the projected actual public financial situation based on the current level of public services, salaries, social welfare payments and other expenditures and tax revenues. The difference between the two is the fiscal space or the amount of money available to use in expenditure (above the current level) and tax reductions and still be compliant with the fiscal rules.

This exercise resulted in what is called the gross fiscal space of €10.9 billion but this figure assumed that income tax bands would be adjusted in line with inflation. As such an adjustment is unlikely, there would be additional tax revenues flowing to the exchequer of €1.8 billion. Adding this to the €10.9 billion we get €12.7 billion of adjusted gross fiscal space. If we add on the €1.5 billion from the possible change in the level of the deficit the total is €14.2 billion. Excluding this reduced deficit impact we are at €12.7 billion.

But, the government could not spend all of this €12.7 (or €14.2 billion) billion on, for example, new teachers, doctors, nurses, social workers and guards or reduce taxation by €12.7 (or €14.2) billion because there are some definite or committed other expenditures over the 2017 to 2021 period. These include capital investment projects, the Lansdowne Rd pay deal and the demographic effect of more users of service through population growth and aging. There is also a plus side in that the number claiming unemployment payments will decrease. The department of finance estimates that €4.3 billion should be taken from the gross space of €12.7 billion, to cover the capital item, Lansdowne Rd and demographic influences to give the net fiscal space of €8.6 billion. You will note that the actual figure is €8.4 billion but this  deifference is due to rounding the totals.

Hence, we have our famous €8.6 billion. It includes an estimate for future demographic pressures and other known expenditure commitments. However, the Irish Fiscal Advisory Council thinks that the €4.3 billion adjustment to the gross fiscal space is too low and that the €8.6 billion (or €10.1 billion if the deficit is changed to 0.5%) gives a wrong and exaggerated picture of the additional money the government will have to allocate over the next five years. The IFAC agrees with the figures up to this point and with the estimate of gross and net fiscal space (actually the IFAC estimates it to be €8.9 billion versus the €8.6 billion) but not with the implication that the money is available for new measures. The IFAC wants to identify the cost of providing the current level of services over the five year period including higher cost from inflation, likely increased salaries after Lansdowne Rd for 2019 to 2021 and increased social welfare payments. In addition, the IFAC believes the demographic adjustment done by the Department of Finance is too low.

Starting from the department of finance’s €8.6 billion net fiscal space which already incorporates a demographic adjustment, the IFAC suggests that another €1.5 billion should be allocated to cope with demographic pressure. The IFAC estimates that the cost of providing the present level of services and expenditure will increase by €4.2 billion between 2017 and 2021 through pay and social welfare increases and price inflation. Consequently, the IFAC estimates that the €8.6 billion (or €8.9 billion as IFAC estimates) should be further reduced by €1.5 billion and €4.2 billion to give an available level of resources of €3.2 billion. When the likely future cost of current services, salaries and social welfare payments are taken into account, the IFAC says there is €3.2 billion instead of €8.6 billion (or €4.7 billion instead of €10.1 billion) net fiscal space remaining for new measures.

The magnitude of dealing with likely increases in wages and social payments is substantial. Keeping pace with the GDP deflator measure of inflation of 1.2% per year would add about €1.7 billion to the social payments total between 2017 and 2021.  The same increase for wages and salaries in 2019 to 2021 would add about €800 million. Indexing the cost of government purchases would add about €600 million in the 2017 to 2021 period. These three alone on the above estimates would add €3.1 billion to the future cost of the current level of services and reduce the amount of fiscal space available for new services and tax reductions, except, of course, that higher social welfare payments, which could also be defined as a new measure, are accounted for. Higher interest payments and higher capital costs would further add to the cost of the present level of expenditure and services.

Some politicians in the election campaign have pointed out that the €8.6 billion (or €10.1 billion) figure includes an allowance for demographic effects. However, as noted, the IFAC believes that the department of finance demographic adjustment is insufficient and should be increased.

The point was also made by various politicians that the IFAC approach prejudges government decisions on wage deals and social payment increases and that these should be part of how the bigger estimate of fiscal space should be used and not excluded from the fiscal space total which is available for decision-making. This is a reasonable position. The IFAC concern is that a failure to make these costs explicit gives an exaggerated impression of the available new financial resources for tax reductions and new spending measures. For example, the FF economic plan allocated €4.76 billion of the available fiscal space for current services but this includes a sum for higher social welfare payments.

The FG economic plan allocated €4.2 billion of fiscal space for current services and notes (page 9) that this allocation includes…”provisions for sensible pay increases,….targeted welfare improvements and for other pressures (over and above a provision for addressing demographic costs)” (presumably the department of finance demographic provision). It was also argued that indexing the cost of goods and services to inflation is not appropriate because more effective procurement would reduce costs.

The IFAC figure of €3.2 billion is not directly comparable to the FG and FF figures of €8.6 billion because the FG and FF figures expect the social welfare increases to come from their €8.6 billion figures  while the IFAC has already excluded this from the fiscal space. However, neither FF nor FG included a provision for additional demographic costs compared to the department of finance’s estimate.

However, it must be remembered that there are no fiscal space monies available now. It depends on future economic growth and will be quite limited in the early years of the new government. In addition, the large amounts which are being mentioned relate to a five year period.

Anthony Foley is Senior Lecturer in Economics in DCU Business School, and lectures on the Executive MBA Programme.

If you’re interested in undertaking a part-time Executive MBA, we’re holding an open evening on March 31st 2016. Details here.

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