After a budget which relaxed the targets for expenditure control and dished out tax reliefs with promises of more, the Government has followed up with a resolution of the Irish Water shambles which weakens budget numbers a little further. The public has been relieved of the higher charges planned, not by the Tooth Fairy but by the bountiful Exchequer, suddenly brimming with cash.

One could be forgiven for believing the crisis was over, that the Government was flush, the economic prospects brightening by the minute and the debt overhang forgotten by creditors.

The European economy has an edgy look to it, like the calm before the storm. There is negligible growth and inflation is zero, or close to it, in most countries. The result is that governments can expect no relief from any fillip in tax revenues.

High debt levels are sustainable only if there is some flicker of life in economic activity, preferably with a little inflation thrown in to soften the burden of debt service. If there is no inflation and little or no economic growth, those eurozone countries with excessive deficits and debts will struggle to avoid another sovereign debt crisis.

The eurozone remains a thoroughly dysfunctional monetary arrangement for Ireland. Access to low borrowing costs by the heavily indebted countries is being supported by an untested promise from the ECB that it will intervene if things go pear-shaped. They might, but then again they might not.

The Irish economic figures are showing some signs of recovery, but Tuesday’s report from the Fiscal Advisory Council (FAC) cautioned that some of the apparent growth earlier in 2014 may be illusory. The technical treatment of some multinational tax avoidance activities means export figures are not as good as they appear. More importantly, the FAC accuses the Government of pro-cyclical budgetary action, loosening the purse strings when the economy is already doing better under its own steam. The FAC is too polite to suggest that Irish politicians would ever be so brazen as to buy votes just in time for a trip to the polls.

At the end of last week, the IMF released its latest assessment of Irish performance. They also think the Government is celebrating too soon. People need to realise that State debt will continue to rise so long as Government revenue is insufficient to meet Government spending.

The day when budget balance is re-attained is being pushed into the future and the outstanding debt will rise until some government bites the bullet. For now, there are ready lenders to finance the deficit and interest rates are at historic lows. How long can this last?

In a rapid follow-up to the Irish Water climbdown, last Monday, Energy Minister Alex White announced a new expenditure commitment which could be seriously costly. High-speed broadband is to be delivered, he hopes by 2020, to every premises in Ireland, residential or commercial. This excerpt from the announcement gives the overall picture:

  • There are around 2.3 million premises in the Republic.
  • The commercial telecoms industry intends to deliver high-speed broadband to 1.6 million homes and businesses – 68% of the premises in the State – by the end of 2016.
  • The remaining 600,000 homes and 100,000 businesses will require direct State intervention to provide access.
  • The direct State intervention will be a programme akin to rural electrification in the last century.
  • The department will go to tender next year for the provision of high-speed broadband to the 700,000 premises not covered by the commercial companies. The commercial companies have selected 1.6 million premises for broadband on the basis that prospective revenues will be enough to cover connection and operating costs.

    The maps on the Government website show that every significant town, village or suburb is included, not just big cities. That leaves about one-third of the premises in the country which cannot be reached without Exchequer subsidy. The minister has committed the key cardinal sin: he has bound the Government to something substantial without a cost estimate, much less a balancing of costs and benefits.

    To be clear: there is no cost estimate whatsoever for what the department describes as “a huge infrastructural programme”. Every single address in the country, business or private, is to receive this piece of Government bounty without a cost estimate.

    This is not the way they did rural electrification.