After a fraught few days of behind the scenes deal-making, Paschal Donohoe produced his third budget on Tuesday – the last one of this administration, everyone agreed – and prioritised spending on public services, Brexit provision and climate measures.
It was harder to put together than the previous instalments, according to people involved in the process, as Ministers wrangled fiercely with Donohoe and his officials for extra resources while he tried to keep focused on his strategic economic and political goals.
The Minister for Finance has to say no to people, but in a system of Cabinet Government, where Ministers act as spokesmen and hagglers-in-chief for their departments and stakeholders, he can’t say no to everyone all the time. Especially when he presides over an exchequer which, whatever he may pretend, is flush with cash.
Donohoe faced challenges to present a prudent, green and Brexit-proofed budget, and he gave himself enough to make a case. The well-flagged climate measures were there, though they will not be enough, not nearly enough, for the climate campaigners camped outside his door. Nor can they reasonably be described as a step-change in Ireland’s approach to decarbonisation; they’re a small step in that direction.
He lumped money into a fund to mitigate the costs of a no-deal Brexit, but it is not money that he had to sacrifice from elsewhere – he’ll borrow it, or withhold it from the rainy day fund.
Fiscal prudence
Donohoe's biggest challenge was to deliver a budget built around a convincing narrative of economic competence and fiscal prudence to which Fine Gael could point during the future election campaign.
But that required one very significant political sacrifice: the Taoiseach’s high-profile commitment to reduce income taxes for middle-income workers, the people who “get up early in the morning” whom Varadkar has targeted to deliver him an election victory since he ran to be leader of his party in the spring and early summer of 2017.
That is the biggest political shift in this budget. Back when this Government was formed, it was agreed that the available spare cash in budgets would be divided between public spending increases and tax cuts in the ratio 2:1. But now, there are no income tax cuts to speak of. Available resources are devoted entirely to public spending increases.
Nixing the Taoiseach’s tax cuts – as well as telling us something important about the power dynamics within Government – earns Donohoe the right to claim the mantle of prudence for this Budget. But it’s a claim that is open to challenge, too.
He is increasing public spending by €3 billion (bringing the total annual spending bill to roughly €70 billion) at a time when Ministers agree there is a threat of a sudden slowdown due to Brexit, and when stormclouds are gathering in the international economy.
Donohoe warns that he will not cut taxes only to have to raise them again if there is a recession; but he has no such qualms about increasing spending that may have to be cut. He might find out that is just as tricky.
Public sector pay
Look at it another way: total spending grows by 3.5 per cent; the economy is projected to grow by 0.7 per cent. Public sector pay will rise by 5 per cent; public sector pensions by nearly 6 per cent. Suddenly the mantle of prudence begins to look a little threadbare.
This feature of yesterday’s budget is not an accident. Donohoe’s budget demonstrates three things about our politics and our system of government.
Firstly, it shows that even when the Government is trying to keep a rein on public spending, annual increases of the order of 4-5 per cent are just built into the system – demographics, public sector pay rises, inflation, and so on. And remember: there were no general welfare increases this year. There was no big expensive move on housing, and just a (by now) routine extra billion euros for health. And still spending growth rattled along. That is all very well when the economy is growing strongly. But it will not be sustainable if there is a recession (as there surely will be sooner or later) or, worse, something more dramatic.
Secondly, it shows that the Government perceives the overwhelming public demand is for spending on public services, rather than tax cuts – a shift leftwards of the political centre of gravity among voters that the Government seeks to reflect. There is a massive and growing demand for public services. And they cost a lot of money.
Political centre
Thirdly, the contents of the budget and the support for it from Fianna Fáil demonstrate the strength of the political centre in Ireland.
In the UK and the US, the two other political systems with which Irish people are most familiar, politics lurches between extremes. Look at the forthcoming general election in the UK; no deal vs no Brexit; socialism in one country vs the Singapore of the Atlantic.
Ireland is the opposite. Though they deny it – for obvious reasons – there is a high degree of policy agreement between not just Fine Gael and Fianna Fáil but between anyone who might be likely to support them in government. This is not just because of confidence and supply. It is because of the consensus that dominates our politics.
Paschal Donohoe worries about the strength of the centre around the world. In his own backyard, it is firmly in control. Its political and economic foundations might not survive a shock. But for now, this centrist, moderate, incrementalist, services-oriented model rules. Next year’s budget, whoever delivers it, won’t be much different.
