1. Fiscal Policy in Ireland  Leddin and Walsh Macroeconomy of the Eurozone, 2003

2. Economic Planning: National Plans To Date First Programme (1958) Second Programme (1964) Third Programme (1969) National Development (1977-80) The Way Forward (1982) Building on Reality (1984) National Development (1994-99) National Development (2000-2006)  Leddin and Walsh Macroeconomy of the Eurozone, 2003

3. Objectives and Outcome These were medium-term plans to achieve specific targets for growth, employment, etc. Compare growth objective with the actual outcome. (See diagram.). These plans were generally unsuccessful due to: 1.Failure to implement measures. 2.Failure to forecast events. 3.Unrealistic assumptions.  Leddin and Walsh Macroeconomy of the Eurozone, 2003

5. Fiscal Policy and the Budget: Pre Celtic Target No Keynesian type fiscal policy until 1972. 1972-77: Oil crisis, recession. Government reacts with expansionary policy in ’75. Timing of the fiscal policy was correct. As economy improved in 1976, cut-backs were introduced to deal with the deficit. 1976: Wealth tax, an upper income tax rate of 80%, VAT on wine, spirits and petrol. Finance minister Richie Ryan dubbed “Red Richie”,and the “Minister for Hardship”. The General Election of 1977 put an end to this progress. Examine charts for deficit, debt and borrowing.  Leddin and Walsh Macroeconomy of the Eurozone, 2003

6. 1978: Boom period. Yet the new government introduced an expansionary policy. Timing was wrong. George Colley. Increased income tax allowances, public sector pay, rates and wealth tax abolished. Rationale: self-financing fiscal boost. Did not happen. Budget deficit increased. Public finances now vulnerable to a downturn in the economy. 1979: another oil crisis as prices rise from $12 to $32 a barrel. This was the end of Keynesian type fiscal policy in Ireland.  Leddin and Walsh Macroeconomy of the Eurozone, 2003

7. Fiscal Rectitude 1982: New government. Economy in recession and budget deficit at an all-time high. Introduction of a deflationary fiscal policy. The policy instrument had taken over from the policy objective. The finance minister John Bruton promised to phase out the deficit over 4 years, proposing 18% VAT on children’s clothing and footwear. Excise duties, income tax, postal and phone charges were all to be reduced. Bruton’s budget was defeated by 82 votes to 81. 1982-86: Laffer curve type effects. Recession and doubling of national debt.  Leddin and Walsh Macroeconomy of the Eurozone, 2003

8. The Celtic Tiger 1987: The formation of a minority Fianna Fáil government led to greater economic uncertainty. Another deflationary fiscal policy. The finance minister Ray MacSharry reduced current expenditure, freezing public sector pay, placing an embargo on recruitment, and raising the tax burden by 9.5%. Paradoxically, there is an increase in economic growth. The explanation for this is know as Expansionary fiscal contraction.  Leddin and Walsh Macroeconomy of the Eurozone, 2003

9. 1991 - 1997: Two main strands to fiscal policy: 1. Attempt to meet Maastricht criteria. Criteria: < 2.7% inflation rate, debt/GNP ratio (60%) and GGD (3%). No active stabilisation policy since 1991. Main concern was to qualify for EMU. 2. National Wage Agreements (NWA’s) between government, employers and trade unions. In return for low wage increases, the government promised to cut taxes at budget time. Essentially a supply-side policy. Contributed to an increase in competitiveness and the high growth rates of the 1990s.  Leddin and Walsh Macroeconomy of the Eurozone, 2003

10. 1997-2002 Charlie McCreevy introduced what may be described as a “supply-side enhancing fiscal policy”. As the economy boomed, the Budget moved into surplus. The Minister gradually reduced income and corporation tax, increased spending on social welfare, education, health and infrastructure. All five budgets from 1979 – 2001 were highly expansionary at a time the economy was booming. Brought forth a reprimand from the European Commission. They argued that fiscal policy is essentially a demand-side phenomenon. McCreevy’s budgets were pro-cyclical and tened to exasperate the over-heating problem.

11. 2002-2010 Will look at this in detail later Govt Surplus continued –Celtic Tiger Growth 4%-6% –Housing market Policy almost as expansionary as before Rapid deterioration in the budget during 2007-9 –Automatic stabiliser: housing market –Discretionary: full employment budget –National Debt

12.  Leddin and Walsh Macroeconomy of the Eurozone, 2003