Esmond Birnie: Even if a Stormont executive budget is agreed, danger of fiscal groundhog day remains
The entire Western world is challenged by pervasive fiscal irresponsibility. Politicians of both the Left and the Right are very happy to spend public money but are much less sure how they are going to fund such spending.
Given the triumph of populism it looks like the priority is winning the next election rather than preserving the next generation.
Levels of taxes rise and in the UK have reached record post-Second World War levels, as do levels of debt.
Regarding the latter there are worrying signs that the bond markets are beginning to revolt. Interest rates are being pushed upwards which signals more pain for households as well as the threat that governments will be chasing their tail as they borrow ever more simply to pay the interest on previous debt.
President Trump raised fiscal recklessness to a new level with his offer of a $5,000 pay out to every adult American.
Perhaps, like his recent golf course diplomacy about a united Ireland, this is just chaff to distract the media.
How the $1,000bn-plus total cost would be funded, given that the Federal budget deficit is already large, is very unclear.
The US Federal deficit is about 6% of US GDP and rising. Trump’s indifference to that growing deficit is one of many indications that even though he is a Republican president he isn’t really an actual political conservative nor does he understand what is necessary to make a market economy work well.
All this matters because there are already signs that lenders around the world are losing their appetite to buy up ever more American government debt. If US interest rates have to rise substantially that could break the current boom in AI-led investment and in turn push the world economy into recession.
Against that Trumpian backdrop the recent horse trading between the Secretary of State and the Stormont parties may seem a very small matter.
Nevertheless, the sums of money involved are important at the level of Northern Ireland.
Apparently, over the course of last week the UK government's "offer" of extra money for the executive jumped from £350m per year for three years, to three times £500m. The latter was judged by the parties as still insufficient.
Some might say this indicates astute bargaining by the executive parties.
Probably more likely it shows a persistent reluctance on the part of UK governments when it comes to negotiating.
Of course, the Northern Ireland politicians now know that the UK government has a track record of buckling and providing packages with additional funding.
So, especially ahead of next year’s assembly election, the parties are factoring that into their decision making.
Why make difficult decisions about reform and funding within Northern Ireland when extra money can always be squeezed out of Westminster?
For sure this does not seem like a rational or fruitful way to resolve the proper funding of this part of the UK.
One oft made claim to justify additional funding for Northern Ireland which the executive has been using is the claim Northern Ireland is under-funded compared to either Scotland or Wales.
It could just as well be argued that the two other devolved nations are over funded compared to need.
And it is all very well the three devolved first ministers signing up to pledges regarding separation from the UK but have they worked out how they would plug the big gap in their budgets, the difference between regional spending and regional tax revenues, if there was no longer a sizeable fiscal transfer from the UK exchequer?
If, a big if, yet another funding package for Stormont does emerge before the start of October or before the UK Budget at the end of October, here are a few details which will repay extra attention.
It is likely that the extra money, £500m or more, will come in three extra "dollops" of cash. That is, the additional funding disappears after the three years and so at that point the executive will be hit once again by a cliff edge.
All rather déjà vu because that is the position we seem to be in at the moment. Hence, an interesting question is whether any extra funding is "baselined".
Another important question is the extent to which the extra money is subject to conditions. Hitherto, as in the previous two packages (those in 2020 and 2024) the conditionality was quite weak – in this, as in so many other regards, history may repeat itself.
If there is an agreement and this leads to an executive budget being agreed at long last, there will be some celebration – and obviously it is better to have a budget than not have one at all.
That celebration, however, may prove to be premature.
There is a great danger of fiscal groundhog day. In not that many years we will once again face massive over-spends and calls for yet another Stormont bail-out package.
l Dr Esmond Birnie, Senior Economist Ulster University Business School