Short-term political reality may sink Forfas innovation

DEBATE on a wide ranging document Shaping our Future, the new Forfas economic strategy, is bound to focus on a few controversial points. More heat than light can be generated as tax changes in areas such as property and VAT grab the attention.

But the Forfas document is a much broader package, encompassing both overall budgetary and financial policy and specific measures to encourage industrial development. It is full of far reaching policy recommendations. The question, as always with such strategy plans, is whether it will be consigned to gather dust on the ministerial shelf.

The Forfas strategy, original because of its long term time frame, is fairly conventional in its recommendations on the public finances. The central point is that the Government must explicitly target a cut in the tax burden and a further sharp reduction in the ratio of debt to national output. It says economic growth could help fund both of these goals, while allowing public spending to rise by about 2 per cent ahead of inflation.

The important point is that the tax and debt goals would be paramount, rather than the situation in recent years when spending has increased well ahead of inflation, leaving only limited room for tax relief.

Whether this Government or any other is prepared to take this approach remains to be seen. Since 1990, government spending has been allowed to increase well ahead of inflation. While the public finances have been kept in check, tax relief each year has depended on what was left over at the end of the budgetary process. An opportunity to achieve faster in reducing taxes has thus been.

The details of the tax strategy are sure to cause wide debate. The document calls for a widening of the VAT net food is the main item currently excluded and makes a gentle and hedged suggestion that a higher tax yield should come from property. While there is indeed a case for tax reform, the experience of recent governments with the residential property tax means little is likely to happen on this score.

The best that can be hoped for is that future budgets will channel more of the fruits of growth towards reducing taxes. Full scale reform is simply not on the agenda, however well thought out Forfas ideas may be.

Elsewhere, it delves into areas not covered in depth in previous economic reports. A detailed section calls for a new approach to science and technology policy and much greater investment in encouraging innovation in Irish owned industry. A new approach to telecommunications, including a fast move to competition and more investment in new infrastructure, also features. Recommendations also cover education, infrastructure, energy policy and the environment.

The Government has guardedly blessed the report. But if most of it is ever to happen it will have to overcome one big barrier the in built inertia and shorttermism of policy making. Though many of the proposals may be relatively uncontroversial, it does not mean they will be implemented. There is not much political mileage in boosting innovation in industry, an important policy priority but one which would take some years to pay off.

How best to consider the new policy approaches in the Forfas report is the important question. As the document says, it is an important time in our economic history, with considerable progress achieved in recent years but no guarantee that this can continue. The first step in trying to chart a way forward will come in the forthcoming negotiations on a new national agreement. It is far from certain that one will he concluded.

The Government may commit itself to examining a long term plan, but, with an election over the next year or so, its realtime horizon may be a good deal shorter.