Brendan Howlin: Selling off a quarter of AIB is of no benefit to us
Posted on May 15, 2017 at 04:26 PM
In yesterday's Sunday Business Post, Brendan Howlin wrote about why selling 25% of AIB is of no benefit to us.
The Lord Giveth and the Lord taketh away. And so it is with Michael Noonan and Paschal Donohoe.
Not too long ago, we were treated to an announcement of the Capital Review, the first truly post-crash opportunity to look at our capital funding requirements. The following week, we were briefed on the contracting fiscal space for 2018 and the need for Ministers to pare back programmes in their Departments. Announcing the capital review Minister Donohoe said resources were very, very, very constrained. Contradictions abound.
The Capital Review is already a puff of smoke. The additional money allocated amounts to a one off 2.6bn over 6 years. That’s less than 10% of the existing allocated expenditure. As the Children’s Hospital project proves it won’t buy much. Despite agreement from the European Commission, the IMF, IBEC and ICTU arguing that Ireland needs to increase capital spending, the Government has little commitment to this area.
There are three identifiable problems. Political priorities are off for a start. For Minister Noonan to have anything to say on Budget Day he needs tax cuts. Fine Gael’s leadership race will only make that worse.
The second is the Rainy Day Fund, which drains an additional €3bn from potential spending over the latter period of the existing plan.
And the third is the sale of a quarter of AIB, with the proceeds being used to reduce our debt-GDP ratio by just 1%.
The last two are related. The reality is that our underlying debt position has improved remarkably since its peak at 120% of GDP only a few short years ago. As Minister I remember being told that our debt dynamics were unsustainable; that Ireland was not viable. That proved not to be the case.
Our focus on economic and employment growth improved our debt position. It is now estimated to stand at 72.9% of GDP by year end. Net of assets it is almost 10% lower than that. Of course, GDP measurement is a factor in this, but the net point is that €3bn would reduce this by little more than 1% - hardly a meaningful difference to make.
On the other hand, €3bn spent on schools and hospitals would make quite a difference. And it would render the Capital Review worthy of the name.
Our post economic crash economic thinking is muddled. The great crash is not coming again. Yet every blip in our economy is treated as if it is.
My own experience as Minister has taught me different lessons.
The first is that the European fiscal rules should support additional investment expenditure to a greater degree. That is why I have been raising the issue at meetings of the Party of European Socialists, and we have a group established that will produce recommended changes by the summer. Our Government is silent on the question.
The second is that economic growth is the solution to concerns about debt and risk. And additional capital spending would contribute to economic growth, not put it at risk. States manage debt rather than paying it off, and affordability is the key concern. Right now, money is cheap. Saving some now, only to have to borrow in the future after interest rates have risen, seems a particularly short-sighted approach.
And the third is that if you’re going to sell a state asset, you better make sure the people of Ireland will feel some benefit as a result. Getting rid of a quarter of AIB to make a negligible dent in our debt levels is hardly such a benefit.
That is why the Labour Party tabled a motion in the Dáil this week, seeking to prevent that sale from happening at least until such time as we can use the proceeds to invest in capital infrastructure. We were supported by the Green Party and the Social Democrats who tabled sensible amendments.
Fianna Fáil and Sinn Féin have previously expressed viewpoints not a million miles away from ours. Fianna Fail’s submission to the capital review argued the same point. I’m hopeful that when this matter comes to a vote on Thursday, we will get the agreement of a majority of members of the Dáil, and the Government will begin to realise that they can’t drive on with this short sighted approach.
Europe’s problems have now moved firmly onto the political stage. The 10 year recession has had its impact. People don’t believe their children will be better off than they were. Millennials, we are told, are losing their faith in democracy. Marcron’s election is important but we cannot take progress for granted.
Central to combatting these challenges is proving that democracy works and that open market economies can deliver for ordinary people. Even in Ireland, which ranks 6th on the Human Development Index, we could do much more to show our people that the sacrifices of the last ten years mean accelerated progress in health, transport, education and housing.
We should make a start by rendering the Capital Review meaningful. There is an additional €3bn available without any changes required in the fiscal rules. It should be deployed. There’s a further €3bn that we must keep in AIB until such time as we know we can use it.
What is remarkable is that having lost the election on their plans for the economy, Fine Gael are now presiding over a single party Government in the economic area. Ministers Noonan and Donohoe may be pleasant men, but at their core they are old school Fine Gael.
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