THE GOVERNMENT should continue with investments under the National Development Plan (NDP) across the entire spectrum from physical infrastructure to human capital, social infrastructure and social inclusion even if economic conditions and revenue buoyancy deteriorate, the National Economic and Social Council (NESC) has argued.
In a new report on the Irish economy in the early 21st century, NESC contends that any other approach would be to ignore the central thrust of its analysis that skills and capabilities are the most important assets in an advanced modern economy.
The report says now "is not the time to doubt the core objective of the NDP's social and economic participation programme, or to withhold the resources necessary to implement it".
It recommends two over-arching policy priorities for the Government; to fine-tune some of the strategic investments in the NDP and the national agreement Towards 2016, and to manage a difficult transition for the economy in a highly uncertain period.
It says some temptations must be avoided which would yield an inconsistent policy approach and repeat policy mistakes of past decades. These include an abandonment of fiscal discipline to have recourse to excessive borrowing for current consumption, cutting back on strategic investments in ways that would ease immediate budgetary pressures but damage long-term prosperity, and maintaining only investments in physical infrastructure.
It also warns against the most tempting but most damaging option of adopting a combination of budgetary and distributional policy that deepened the economic downturn and which ignored the degree to which non-trade employment is related to the performance of the traded sector.
NESC also proposes that in the years ahead the Government should maintain capital investment of at least 5 per cent of GNP and that overall taxation should be set at a level that is consistent with a dynamic economy and to maintain a level of expenditure adequate to support economic and social development.
"The management of the public finances should provide scope for current expenditure to invest in the services required in critical areas in Towards 2016, including making progress towards the services envisioned in [the report] Developmental Welfare State, and the delivery of the National Disability Strategy."
It suggests that the Commission on Taxation should examine the possibility of replacing stamp duty "with a more sustainable and equitable form of property tax".
The report suggests that a number of the strategic investments set out in the NDP and Towards 2016 require particular attention.
It says, in relation to early child development and childcare, it is aware of the major long-term cost that will result if the existing provision in this area proves to be "too little too late".
It also says the "effectiveness of the additional resources being given to schools to address educational disadvantage needs to be ascertained and assured".
It says the manufacturing sector is experiencing a high level of restructuring, but that high value-added functions are expanding. There is considerable potential for more research and development to be carried out in support of retaining these high-level tasks.
"Policy needs to become clearer and more adept at ensuring the maximum return to the national economy from the much-higher public spending on research and development."
NESC also says a shift in the composition of exports towards services has been beneficial, and there is considerable potential for this to continue.
The Irish Times