Richard Curran: Like death and taxes, €200bn debt will always be with us


NTMA HQ: Setting up a specialist dedicated agency to focus on debt management was a very smart move. Photo: Tom Burke
NTMA HQ: Setting up a specialist dedicated agency to focus on debt management was a very smart move. Photo: Tom Burke

The spectre of our massive national debt reared its ugly head again this week. Sometimes, the truth really does hurt.

It came in the form of the now Annual Report of Public Debt. With more people working in this country than ever, house prices surging ahead and our economy continuing to grow at the fastest pace in the EU, this really was a bucket of cold water.

Basically, the Department of Finance reminded everyone that Ireland has the third-highest rate of national debt per head in the world – behind Japan and the US. (US national debt is now running at $21trn – up $1.5trn since Donald Trump became president).

Our national debt is €201bn or €42,000 per person. Put another way, it is €89,000 for every person working in the economy right now.

We have always had a rather strange attitude to our national debt in this country.

In the early days of the Irish Free State our politicians were quite financially prudent, almost trying to prove to their former British economic paymasters that they were capable of running a responsible fiscal show.

Big spending and accumulating national debt really only got going in the 1970s and 1980. By the mid-1980s, it became a national bogeyman figure as the country teetered on the economic brink.

During the more recent economic crisis, once again we became obsessed with the weight of the national debt and whether it was something the country could ever service – never mind pay off.

It would be the source of a lost generation, or two, as we would buckle under its weight, unless the EU gave us a write-off. They didn’t. They just gave us more time to pay.

Since then, the country has moved on as the economy took rapidly turned around. Yet, the national debt is very real and is costing us close to €6bn each year to service.

Put another way, before the crash, Ireland was paying about €2.5bn a year in interest on €43bn of national debt. Since 2009, the state has paid out a total €53.9bn in interest on our national debt.

Imagine what we could do with €6bn a year if we had managed to avoid the banking and exchequer crash of 2008.

I remember the first time I set foot inside the National Treasury Management Building (NTMA) in Dublin. It was 1992 and I was just starting off as a business journalist. The agency was only two years old and the building was one of the most lavish I had ever been in.

As I stood in the lift, following a press conference about something other than the national debt, some veteran journalists began decrying the extravagance of the building. “What a palace to locate a government agency set up to manage our enormous national debt. It is like a monument to our national debt or something you might see in Latin America”, one hack complained.

As it turns out she was wrong. The building was privately owned and the NTMA is just a tenant. Setting up a specialist dedicated agency to focus on debt management was a very smart move which has been replicated in other European countries. Mind you the building is still very nice.

The NTMA has earned its corn over the years in having the credibility and skill set to manage Ireland’s borrowing needs. At every juncture in recent years, NTMA chief executive Conor O’Kelly, has given public reminders of the challenges of servicing and managing such a sizeable debt burden.

The obvious question is whether we can continue to repay our interest and ever actually pay the money back. Firstly, you don’t really ever pay it all back. But we do need to reduce it. Bear in mind we haven’t actually reduced the amount of our national debt by a single euro in the last 18 years.

Secondly, the interest bill is very substantial but manageable in the current exchequer environment.

In order to bring the debt level down, the economy has to keep growing and Exchequer tax revenues with it. The first thing that has to be done is to stop borrowing more money by running up deficits.

The Department of Finance warned that continuing to run a budget deficit, even when there is strong economic growth, “increases the vulnerability of the public finances to an economic shock”.

As things stand, €1 in every €13 spent by the Government goes on paying interest on the national debt. Put another way, almost one-third of the income tax paid by workers in Ireland goes on the interest bill. It is an enormous financial albatross around our necks.

Despite enjoying a period of extraordinary economic growth, the State is still borrowing money each year to balance the books.

Government plans envisage some deficit this year and again in 2019, before we stop borrowing in 2020. Throw some negative economic news into that mix and we may end up borrowing more and more.

Thirteen of the 28 EU member states now run budget surpluses, including Sweden, Denmark, the Netherlands and the Czech Republic.

Put in this context, the national debt places Finance Minister Paschal Donohoe in a very tricky position, especially as the budget approaches. He wants to maintain tight fiscal discipline. He has to under EU rules.

Yet, he is under significant pressure to increase spending in key areas. Everybody wants a share of the money flowing into the Exchequer.

They want better services, more infrastructure, pay increases and tax cuts.

The numerical situation in Leinster House keeps that pressure up. Fianna Fáil will want to see some ‘victories’ for them in the Budget, for which they can claim credit.

For these short-term political reasons, the minister will likely go full throttle on the “fiscal space” available to him of around €800m in new spending and tax cuts.

If he wants to do more, and he will come under pressure to do so, he will have to introduce new revenue-raising measures or increase existing ones. This is where we are likely to see a few stings in the tail for people from October’s budget.

At a time of record employment and record Exchequer revenues, he has to come up with some kind of explanation for taking some money off people.

The special 9pc Vat rate for the hospitality industry is likely to increase, and he can present this as being about fairness and price-gouging in Dublin hotels. Higher excise on diesel is another possibility, which can be presented as saving the environment.

We may see him at least signal a cut in pension tax relief, which can be presented as paving the way for an auto-enrolment system the Government is planning.

However, the scale of our national debt, and the cost of servicing it, raises the question of how much ‘fiscal space’ is really there at all. We have €30bn of our national debt to be re-financed by 2020. Our credibility in the bond market is good, partially because we have shown we always pay up, even when we don’t have the money.

The cost of the crash continues to haunt us. It isn’t just about the €53.9bn in interest payments since 2009. Back then we had €22bn in the National Pension Reserve Fund, invested mainly in blue-chip stocks around the world.

If we hadn’t raided it, based on global stock market performance since 2009, it would be worth around €37.5bn now, even without making any additional payments into the fund. This would make it the 27th largest sovereign wealth fund in the world.

Hubris got hold of Ireland before. The country needs these reminders that like death and taxes, this debt will always be with us.

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