After years in fiscal death valley, Michael Noonan finds himself in something of a sweet spot as he steps up preparations for the budget next month.
With the economy growing speedily, the Minister for Finance is in the unusual position of having his outline plan for the budget endorsed by the Irish Fiscal Advisory Council. After all, the council tends to say no. Yet its informal blessing follows tacit support for the budget plan from the OECD.
This pleases Noonan. “It’s always good in the political system to get outside endorsement for what you’re doing.”
At Merrion Street yesterday – in the middle of pre-budget meetings with business lobbies, farmers, trade unionists and social campaigners – he set out his vision for the recovering economy. His is an argument for even growth, balanced budgets and rules-based policy-making.
There’s no avoiding the looming election, of course. Noonan says a 25 per cent stake in AIB would be floated next year on the Dublin and London markets if the Government is returned to office.
Of the property market right now, he says the Central Bank should examine whether to ease mortgage caps for first-time buyers. “What I’m saying is that market conditions are changing rapidly and there are aspects of it now which, according to the construction industry, are inhibiting starter homes.
“All I’m saying is the bank should review. If the bank say we’re not changing anything then, of course, I’ll accept that.”
Noonan’s core theme is familiar enough: no return to the boom and bust follies of the past.
Yet he and Brendan Howlin, Minister for Public Expenditure, face a cascade of spending demands from their own colleagues in Cabinet to go well beyond the agreed €1.5 billion limit on the 2016 budgetary expansion. Have they not learned?
At issue are fiscal constraints set out in domestic and European law. Are spending Ministers now seized of these rules?
“I think they are. But I think at things like the think-in in Adare it would have been explained, and the parliamentary party is seized of it. But Government departments always bid for additional money, you know.”
Asked whether the magnitude of the bids came as a disappointment, he says that is in line with historic practise.
“It’s the job of line Ministers to ask and it’s the job of central Ministers like Brendan and myself to refuse them.”
Selection
Noonan smiles as he acknowledges his selection to contest the election in the renamed Limerick City constituency.
Yet he will not say whether he plans to return to the Department of Finance if Fine Gael prevails. That would be a matter for Enda Kenny, he insists.
“I’m laying plans out that extend beyond the election – so the next minister can take them up if I’m not here. It’s continuity of planning rather than continuity of personnel I’m primarily interested in.”
As for the timing of the election, this is a matter for Kenny. “It’s his call. When he asks me for advice I give him advice.”
But is it true that Noonan would not be in favour of going to the country immediately after the budget? “It won’t be my decision, and we’ll see. The economy is driving on all the time, and things are improving all the time. It’ll be the Taoiseach’s decision. It won’t be a collective decision.”
The budget next month will be predicated on the achievement this year of a budget deficit amounting to 2.3 per cent of gross domestic product. Budget planning for 2016 assumes a deficit in the region of 1.5 per cent of GDP. “1.5 will get us well into the space our projection for the debt next year will be, well below 100 per cent [of GDP]\, he says,.
Can he be more specific? Noonan replies that the figure could come in at “95ish” per cent of GDP at the end of 2016.
“We’re not factoring in there any money from the sale of AIB. We’re going to get quite a lot of money this year and next year – without any sale of AIB – from preference shares and from CoCos and so on.
“We’ll sell 25 per cent of AIB if we’re back in government. All that will come off the debt then.”
Would this be by way of an initial public offering (IPO) on the stock market?
Top three
“Yes. It will be jointly Dublin and London. It will actually be the biggest IPO in London. I think it will be kind of in the top three historically, so we’re talking about very big money. It has to be carefully managed.”
How much roughly? “I don’t know. It was valued at over €13 billion or so. A quarter of it? It’s a good lump of money anyway.
“If it doesn’t happen until this time next year we’ll have another half year. We’ll have full-year returns and we’ll have half-year returns for 2016 – and everything is very positive, so values are going up, there’s no doubt about that.
“But you always have external factors, whether it’s China or Europe or America or interest rates rising or whatever, so I don’t want to get into precise figures.”
Using bank sale proceeds to pay down debt reflects concern – expressed most recently by debt rating agency Moody’s, as well as by the Fiscal Council and the OECD – that Ireland’s high debt level makes the State vulnerable to external shock. “Beyond that there isn’t another internal risk. So I am looking forward to making this budget the first budget of what I regard as the new business cycle,” Noonan says.
The recovery is a “work in progress” but plans for the budget assume annual growth rates between 3.25 per cent and 3.5 per cent until 2020.
“The only reason we’re stopping at 2020 is that it’s the forecasting period. I don’t see any reason why this wouldn’t go on for a decade.
“The primary policy plank on which I’m building is that we mustn’t let it happen again. We mustn’t go from boom to bust again, and there are ways to stop that...In future interventions for this Government – and its successor government if we can get back again after that – it will be quite clear that interventions will have to be countercyclical because we’ll have balanced the budget.”
The spring economic statement in April assumed the State would balance the books in 2019. However, Noonan says this will be within grasp a year earlier than that. So Fine Gael will promise in the election to balance the budget within three years? “We have to revisit the figures, but I think we can do better than the spring statement. Everything is moving forward with the very rapid growth.”
Noonan attaches high importance to the budget rules. “You know the theory that if we didn’t have the fiscal rules, Noonan and Howlin would go crazy. We’re not, no,” he says.
“We negotiated the fiscal rules. We brought them home, and we put them to the people by way of referendum. We’re committed to this model. But it goes back to the opening position. We need pieces in place that prevent that boom and bust cycle that bedevilled us for so many years. Three times in my political career the country has gone from boom to bust.”
Lowest income
Of the budget itself, he reveals little of the plan to cut tax but stresses that the benefit will be concentrated on people earning up to €70,000 from the lowest income.
“We think low and middle-income people are the target for reduction because they’re overtaxed. We’ll be operating in that space... But the purpose will be to give relief to people we identified in the tranche we had last year as kind of middle Ireland.”
On the question of whether the universal social charge might be dismantled or overhauled, Noonan insists he will say whatever he has to say on budget day.
“Whether you take it one way or another, the way most people look at it as at the bottom line. Now, the USC is quite unpopular because it’s new. People see it as the added imposition and the sacrifice that was made to take the country out of crisis.
“So now that the crisis is over the public perception is: well, if you’re removing a tax it should be USC. But from an economic point of view in terms of tax as a policy lever to drive the economy...well then it doesn’t really matter where you make the move. It depends on the impact on the individual taxpayer.”
Is he saying the USC is here to stay in one form or another?
“No I’m not. I’m not saying anything either way. I’m saying that under the rules of the game I can’t give you more accurate information in advance of the budget.”
Last election
Then there is the election. Noonan indicates he is unperturbed by the strength of Independents and others. This cohort was at 24 per cent in the most recent poll, down from roughly 30 per cent in previous surveys but up form 17 per cent in the 2011 election. “What I’m saying is that if you look at the changes from the last election, it’s moving back to where it was. That’s the trend.”
What would be the implications of a surge for Independents and others next time out?
“In my view political instability always leads to economic instability. It’s the last thing we need now, just as we’re getting out of the major crisis and growing at the fastest rate in Europe. We don’t want that knocked back by political instability.”
We can expect to hear a lot more of that once the campaign begins in earnest. He recognises, however, that the Government will lose votes over the water debacle. So what went wrong there?
“In the teeth of very strong opposition it’s always difficult to get acceptance for a new tax. I think there’s acceptance now, I find anyway
“ They’d be quite critical of the way the issue was handled, but there’s acceptance of the principle that water is a scarce and it should be paid for. There’d be an argument about how much, but I think it’s moving in the right direction. Of course there were difficulties, and I presume there’ll be electoral cost attached to those difficulties, but it was a difficult time, we had a lot of very difficult decisions to make.”
Water, of course, became the beacon around which anti-establishment political forces of all stripes rallied.
“The surprise I had, and the surprise Europe had, was that the protests didn’t begin earlier with all the tough things we had to do,” Noonan says.
Water is far from the only difficulty the Government has encountered. He has nothing to say of the inquiry into IBRC, which is under the responsibility of the Taoiseach’s department.
Of corruption allegations surrounding the disposal of Nama’s Northern properties, he says there is no case to answer for the bad bank.
“The sale was conducted absolutely properly. If there was any impropriety it was on the purchasing side, not on the sell side, and I don’t know whether there was impropriety or not.”
Asked whether UK or US investigators have approached Dublin for information, he says “not to me”. Nama has published 300 pages of data it made available to the Stormont committee which is investigating the affair, he says. “There mightn’t even be a committee in Northern Ireland the way things are going.”
Asked for his observations on all that, Noonan launches into a forthright attack on Sinn Féin. “Sinn Féin are incapable of running a government.”
So what exactly is the problem? Sinn Féin as a political party or movement? Or the individuals within it? Or is it a policy deficit? “It’s populism. The inability to make a decision which will cause Sinn Féin any potential loss. If they can’t handle a budget with a couple of hundred million around social welfare, how are they going to handle a national budget down here with all the things we have to do and the decisions we have to make every year? ”
None of this takes account of naysaying unionists. But is Noonan saying Sinn Féin is not ready for government? He laughs.
“If I said they’re not ready they I’d be saying they’d be ready some time in the future. I’m not saying that. I’m not analysing Sinn Féin. A legitimate way of continuing political debate is to look at the record of different parties. The record of Fine Gael and Labour for five years is that we have been very good at handling an economy that was in the greatest crisis ever since the State was founded.
“Then we can look at the only Sinn Féin experience in government in the Assembly in Northern Ireland and in their role up there. And in terms of economic management it’s been dire.”
A caustic election is in prospect.
