ECONOMIST’S EYE
‘At the end of the day, the Government needs
to focus on competitiveness and on delivering
the liberalisation that has been promised’
McCarthy also points out that at the same time there is trouble the planning system. “At the end of the day the Government
in the multinational sector as our competitive advantage in the needs to focus on competitiveness and on delivering the
area is no longer unique. Other countries now have similar tax liberalisation that has been promised.”
advantages and a lower tax base. He argues that any significant
expansion in employment in US multinationals is improbable at Spending sense
the moment and this could further add to the contraction. But McCarthy is also adamant that the Government must get its
spending habits under control. He is scathing about its ability to
Inherited FDI spend money well. Of course, it is an article of faith amongst
The one positive factor is that we do have an inherited stock of economists that day-to-day spending needs to be brought back
foreign direct investment (FDI) here. However, he worries that it in line with growth but it is more contentious to focus on capital
is hard to see how Ireland can maintain its share of FDI into spending which, he argues, needs serious attention.
Europe even if Europe cannot maintain its share of global FDI. The Minister for Finance is always keen to stress the long-term
Another factor impacting on foreign investment is the possible investment credentials of capital spending and in particular the
recession in the US, which leads to a lack of confidence in National Development Plan. However, McCarthy questions
corporate America, again making corporations less likely to whether massive cost overruns on a wide variety of projects,
engage in expansionary investment. from the Port Tunnel to the Luas and the Ballymun
However, despite all the negativity, McCarthy stresses that this Regeneration, add any potential to the economy.
does not mean the Irish economy is going to implode. “Recent “There is an idea that capital spending is untouchable. But
forecasts have predicted growth of between 2% and 3% this now it looks as if it is going to cost €1 billion to redo a north
year. If even 2% is reached, that is not much of a slowdown on Dublin suburb, more than double the initial estimate. The Port
a global scale.” However, he is gloomy about the automatic Tunnel and Luas also came in at around €500 million in
assumption of a recovery in 2009. additional spending each. That is three projects in Dublin which
“Even if we see 45,000 house completions this year, how many have cost between €400 million and €500 million in extra costs
will actually be started? So far it appears that most developers each. That simply would not be allowed in the real world and it
are currently unwilling to start or lay any foundations. If that certainly does not power anything ahead.”
continues over the course of 2008, the number of completions The Luas cost around €34 million for each kilometre
could be lower again next year.” compared with an average cost of half this amount for recent
Globally, growth between 2% and 3% is reasonable over the light rail projects in the UK. Now, he points out, the Government
medium term for a developed economy. The big problem for has started building the Western Rail Corridor and it is not even
Ireland is the downward adjustment from recent highs. And the clear there is a finished cost benefit analysis for the project.
group with the biggest adjustment problems, according to “It is incredible we have decided that a 19th-century mode of
McCarthy, is the Government, which has got used to bingeing on transport is the future, it makes no sense. We do need to spend
double-digit spending increases. money updating schools and hospitals, which involves social and
“This year spending is set to grow 8.5% and the Government educational capital. But we need to be sure what the benefits
thinks that is a cutback,” he says. “Health spending is growing are. No project should be started without a thorough, published
even faster; the money ran out in November and there was talk cost benefit analysis being conducted.”
H
of cutbacks. At the end of the day, if the economy is growing So what is his prognosis for the year ahead? “We know there
between 2% and 3% and inflation is running at around 3%, is a significant slowdown and recent figures are beginning to
spending increases need to be no higher than 4%.” suggest that it will be worse.” But in the next breath, he points
The Government, he argues, is not focused on the problem. out “of the past we can be reasonably certain and of the future
Wage agreements are pretty irrelevant in the private sector not at all”.
where wages tend to look after themselves, so they are only
really about what the Government is going to pay its own Jane Suiter (BA Economics and Politics ’89) is a financial and
employees. The real problem, he says, is other costs that hinder economics journalist and for many years wrote for The Irish Times.
competitiveness including energy costs and other areas such as She is currently pursuing a PhD in Political Science.
UCD CONNECTIONS PAGE ELEVEN
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