Medium term policy moves to the fore
In recent years we in Finance have asked Ireland’s leading financial sector economists to submit their policy recommendations to the Minister for Finance in time for the forthcoming budget in the form of an ‘open letter’ or ‘memo to the Minister’. The fact that we chose to poll ‘financial sector economists’ rather than other economists has no significance other than that the poll is conducted by ‘Finance’ Magazine certainly one’s employment should not, one should imagine, influence one’s objectivity. It offers us a neat subset of the wider profession to survey in advance of the Budget yet it is a group who include the country’s most eminent practitioners, as the list on page eight testifies.
An overall impression could be drawn from last year’s survey that the then forthcoming Budget (of December 2000) was important in that the Minister and the Government needed encouragement to keep to his medium term supply side strategy of tax cuts and incentivising the economy, especially in view of opposition from a number of his fellow Ministers in the EU. Twelve months on, it is striking that the preoccupations of the panel are as much with the forthcoming Budget as with medium term policy for the years ahead. This reflects the fact that we are approaching the end of an economic policy ‘era’, followed by a degree of uncertainly about the shape of economic policy under a new Government.
This uncertainty undoubtedly is already affecting business confidence in Ireland. For the medium term, the sooner we begin to see the economic policy prognostications of the Government and Opposition parties the better because the fear will persist now that a new Government might undo the good work of the past decade, and the outgoing Government, and return the country to the fiscal bankruptcy that followed the 1977-79 boom.
Certainly, public current expenditure is now rolling forward at an unsustainable rate and if left unchecked could end the virtuous cycle that has seen the Irish economy through the past ten years. One of the hopeful aspects of the Irish economic outlook however is the wider consensus that exists today (and this includes Opposition parties and the trade union movement) about the policies that have served, and will continue to serve, the economy well. Therefore it is striking that there is such a degree of unanimity amongst the economists polled about the issues the PRSI ‘skills tax’, the need now to dismantle the Bacon measures, now that they have done their job, and the need to continue to reduce the tax on labour (income tax) (we have a mismatch between the tax rate on employment and the tax rate on corporations and nobody is arguing that the way to balance it is to raise the corporation tax), as well as concern about the stability of the public finances, and the potential emergence, even, of a current budget deficit in the not too distant future.
Those who remember the bleak years of the 1980s and the Minister is one of those who do will know enough about them not to wish a return to those conditions. We know that a medium term strategy is needed to avoid this, and, we know from the policy successes of recent years, as well as from the eminent advice offered in these pages by some of the best brains in Irish economics, what kind of medium term strategy to put in place.
Recruitment
Although the economic slowdown in Ireland has led to some job losses, recruitment agencies in Dublin are seeing little change in the demand for staff in the financial services sector. In our Recruitment Survey it becomes apparent that the IFSC in particular, which deals largely in back office staff, is not expecting reductions in staffing levels and in some cases is even considering expansion.
But there have been changes in the employment market, the major one being that it is now employer driven. Employees have also become less demanding regarding bonuses and additional benefits, recognising that job security is more important in this uncertain market. Recruitment agencies also report a swing to benefits of a more flexible nature. |
