Economics’ go-to guy on the radio

Newstalk 106’s Economics Editor Mark Coleman speaks to Grace Walsh about the economic challenges heading our way

Newstalk 106’s Economics Editor Mark Coleman speaks to Grace Walsh about the economic challenges heading our way

Today is budget day. It is the first time in living memory that the budget has been brought forward by two months to October. It may be an attempt by the government to look as though they are dealing with the current economic crisis or it may be to increase tax levels. Trinity News asked Marc Coleman what tricks the government may have up their sleeves.

“I expect strong cuts in expenditure, in recent years government spending has exceeded justified levels in comparison to the relatively low output of the public service. This waste must be eliminated.”

Recently in the media there has been much coverage of the inefficient and bloated public service. There has been much speculation that the public service is to experience a severe wake –up call in the form of reducing everything from expenditure to personnel to bonuses in an attempt to cull the gross wasting of taxpayer’s money.

“I am not anticipating tax increases but we can expect an increase in non-indexated tax bands and thresholds [such as VAT and Excise Duties] which will effectively act as a tax increase.”

“Also I expect to see an increase in Pay Related Social Insurance (PRSI), and hopefully the end of the apartheid system in which the private sector is obliged to pay PRSI whilst the public sector, as part of their contract, does not.” 0

The European Commission will have to scrutinize the budget from a macroeconomic point of view, however the Minister’s budget is unlikely to be constrained by the Commission. This year the budget is likely to breach the 3% deficit limit by a substantial margin.” It is rumored that the government may have to borrow up to the European maximum level of 60% of GDP. As unlikely as it seems “This is a good thing, the economy is having difficulty breathing so it is important for the government to loosen the belt and tie. Provided current taxes broadly meet current standing the government should be happy to borrow up to 9 billion.”

“If you learn to swim against the tide you will be a much stronger swimmer when tide turns in your favor.”

“However borrowing for current purposes is unacceptable. The Controller and Auditor General’s Report has indicated that tens if not hundreds of millions of euro a year is being wasted in government spending. By not acting to end this waste but at the same time borrowing for current purposes the government is inflicting an unnecessary burden on the taxpayer and that is only the tip of iceberg. Structural reforms of public service, in the form of targeted cuts and useful public spending could release billions of euro back into the economy.”

On the topic of recession and the collapse of the global stock market Coleman refuses to go overboard and adapts a moderate, realistic viewpoint.

“The market crash is the direct result of 10 years loose monetary policy- too low interest rates- weak regulation of banks and poor credit rating. As a result growth in the world economy in recent years has been more fat than muscle. Recent increases in interest rates since 2005 have revealed this to the markets and they are now reacting. If the government can restore confidence in the banking system and if media can be constructive in not talking down economy then asset prices and economic activity generally should begin next year to stabilize. Asset prices should stabilize where they were in 2003/2004 and global economic activity should grow weekly from 2009.

However in this country we are dealing with the excessive overhang of SSIAs and credit growth which artificially inflated the economy between 2005 and 2007. As most of this growth was illusory we should expect the economy to wash it out of its system during the next 18 months. Economic activity should stabilize at the level attained in 2007 sometime during the year 2010. This adjustment is perfectly natural and healthy. It must be managed carefully by the government by keeping the lid on taxation and dealing effectively with public spending. If government makes mistakes on taxes and spending that’s another matter.”

“There is a lot of fear out there at the moment. I would like to think that people like me, Newstalk and the Sunday Independent are doing their best to provide balance on the negative and positive factors of the economy. This (sense of balance) is less evident in other media outlets which are perhaps immune to many consequences of the downturn.”

Unemployment has become, for the first time in years, a serious worry for graduates. “However