Michael Noonan has taken a parting shot at Leo Varadkar, the new Fine Gael leader, warning him not to drop the pace of debt reduction in order to pay for his campaign promises to invest in roads, rail and hospitals.
In what may be his final speech as finance minister, Noonan has pointed out that Ireland’s debt is still the second highest in the world per head of population and remains a serious risk.
Varadkar and Simon Coveney, his defeated leadership rival, met in Government Buildings yesterday to discuss the new Fine Gael leader’s plans. One senior source said they “discussed roles”, though Coveney did not seek any specific commitment and no decisions were made.
Asked at his first press conference after being elected if he intended appointing Coveney as his tanaiste, Varadkar replied: “We have a tanaiste. The tanaiste is Frances Fitzgerald.”
Notwithstanding that assurance, however, many senior Fine Gael figures believe Varadkar will ultimately invite Coveney to be tanaiste with, perhaps, Heather Humphreys taking the position of deputy party leader. Final decisions on cabinet positions will not be made until after Varadkar has spoken to independent members of the government and to Fianna Fail, another source said.
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At his first press conference as Fine Gael leader on Friday night, Varadkar repeated a campaign commitment to ease Ireland’s debt-reduction programme in order to ramp up investment on capital infrastructure, ahead of Brexit and a possible protectionist approach by America.
Varadkar has promised to build Dublin Metro, which is estimated to cost €2.5bn, and an M20 Cork-Limerick road, which will cost about €1bn. During the campaign, Coveney described Varadkar’s manifesto as “a list of spending commitments”.
In Noonan’s speech to the Institute of International and European Affairs on Friday, he warned: “There’s €200bn in debt — per capita there’s €42,000 for every man, woman and child in the country — and we’re second only to Japan if you measure it on the basis of per capita debt. So the risk is out there with that huge bulk of money. If you look at it historically, at the top of the Celtic tiger, the debt was €25bn. It is now €200bn, so you can see by historic measurements, that it has changed dramatically and it is a risk.”
On budget day last October, Noonan announced a new debt-to-GDP target that went beyond the requirements of the European Union’s stability and growth pact. He said the government had decided to set a new domestic target of a debt to GDP ratio of 45% to be reached by the mid-2020s or thereafter “depending on economic growth”.
In a policy paper published during the Fine Gael leadership campaign, Varadkar said he would substantially increase capital spending above what is planned through a new 10-year national development plan. “We will amend our national debt target to 55% (from 45%) of GDP, which is within existing EU rules, to allow greater capital investment. We will lead an effort in Europe to allow for greater spending on infrastructure and to restore the ‘golden rule’ that treats borrowing for investment in capital differently to day-to-day current spending.”
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This week a Department of Finance report will warn that Irish debt appears lower than it really is, being calculated as a ratio against gross domestic product (GDP).
It will warn that GDP overstates the true level of economic activity in Ireland despite being compiled in line with international best practice and, thus, the ratio of public debt-to-GDP paints a benign picture of debt developments in Ireland.
Another measure of public debt due for publication later this month is expected to indicate the ratio of debt to gross national income (GNI) could be about 100%, compared to the 74% debt-to-GDP ratio.
“Debt is a big risk in Ireland,” Noonan said on Friday. “Our fears are allayed on debt because of the way it is measured internationally. On the debt-to-GDP ratio we are about 74% and the European average is somewhere below 90% so it looks very good but there are other measurements where we don’t look good at all.”
Varadkar has said his immediate priorities as taoiseach will be agreeing a new public sector pay deal and a capital development plan. He said once the UK elections are over he will work to get the Stormont executive restored and to get special post-Brexit arrangements for Northern Ireland. He said he and Arlene Foster, the DUP leader and former first minister, had worked together as tourism ministers in the past.
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Asked if he would consider entering coalition with Micheál Martin’s party, he said: “It would not be honest to say that we would forever rule out going into coalition with Fianna Fail. It’s not good when you’re in the middle of a waltz or a tango to be looking over your shoulder to see who is lining up along the wall.”
This was more conciliatory than his response when asked about a Fianna Fail coalition during last year’s general election, when he said: “It is not on the cards for two reasons. First of all, because Fianna Fail needs to spend more time in opposition. I don’t think they can yet be forgiven for the economic disaster that they inflicted on this country.”