THE annual OECD report on Ireland provides sobering reading for those who assumed the good times of the past decade will inevitably go on and on.
It would be wrong to exaggerate the problems that the Irish economy is facing. Economic growth is strong;
the public finances are good and there is virtually full employment.
But there are too many warning signals in the report to be ignored. We know that the economy is changing . . . these days it is driven more by the building sector, financial services and consumer spending, than manufacturing . . . but the OECD suggests that government policy is not responding to these changes quickly enough.
For the last decade, Ireland has enjoyed the luxury of being able to grow public spending way above the European average, while reducing taxes and pretty much balancing the books.
It would be churlish to be overly critical of our politicians, given the strong performance of the economy in that time, but, with so much money at their disposal, potential problems could be easily addressed and difficult decisions shirked.
With the OECD warning that government revenues may be close to peaking, that is not sustainable longterm.
Even without the type of negative shock that the report warns about . . .
a loss of foreign investment or a slump in the housing market . . . it is clear that some difficult choices lie ahead.
A whole range of issues, such as reform of the public service, third level fees, the need to end restrictive practices, have been long-fingered by the government . . . the strength of the economy and public finances papering over the potential cracks. But at some point . . . and the OECD warns this could come sooner than we expect . . . these and other thorny issues will have to be addressed.
For example, is it possible to develop the high skills economy we all recognise is needed if our third-level institutions are not adequately resourced? And can they be adequately resourced unless fees are reintroduced? Politicians, virtually to a man and woman, dismiss this notion but nor are they willing to countenance the notion of increased personal taxes as an alternative means of funding.
The OECD's warning that the government needs to put more money aside for a rainy day is timely given the revelation last week that public sector employment is likely to rise by almost 9,000 people this year. That is an extraordinary rise given the strength of the labour market. And far from putting money aside, there are also signs that public expenditure is creeping up in advance of next year's general election.
It would be unfair to underestimate the challenges that politicians face in dealing with these issues. We have all become used to the good times and, no more than our TDs, may find unpalatable some of the difficult decisions that need to be made.
However, it will be a lot easier to address these issues from a position of strength. Twenty years ago, warning signals in the Irish economy were ignored and nobody needs reminding of the disastrous consequences. It would be folly in the extreme if we risked undermining all the good work of the past decade by repeating the error.
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