The annual budget is always something of a balancing act in terms of detailed spending and revenue raising measures. But the overall direction of the package is key. Typically, Irish budgets have been generous in good times, leading to cutbacks or higher taxes when things are tight. Ideally, it should work the other way around with the Government having the financial firepower to support a slowing economy.
Now, we are told, it will be different and in some ways it is. Annual budgets are drawn up within rules and guidelines set down by the EU. This has obliged us to reduce borrowing and the ratio of national debt to GDP, and to keep annual spending increases within defined limits. The idea of these rules is to break the old boom and bust cycle which has bedevilled the Irish economy for years.
The Government has stuck to the EU rules in terms of its budgets and also deserves credit for planning to establish a rainy day fund. However it intends to continue borrowing next year, albeit only to the tune of 0.1 per cent of GDP. With the economy growing so strongly, there is a cogent case for the budget being in surplus, a point made this week by Department of Finance officials in a report on the national debt and also, forcefully, by Central Bank governor Philip Lane.
The reasons are twofold. One is that a thriving economy does not need further impetus. The second is to leave some leeway in the event of a slowdown which would reduce tax revenues. The risk of a “no deal” Brexit is the most obvious immediate threat, but looking further ahead there are others. With our national debt high and tax growth so reliant on potentially volatile corporation taxes, Lane argues that the Government needs to be more conservative in its targets.
This would not rule out reform of tax or spending programmes, of course. Nor would it prevent the Government addressing key priorities in terms of social equality. But it would mean that new revenues or savings would be needed to pay for additional spending or income tax cuts elsewhere.Such genuine reform programmes would indeed be a new era for Irish budget policy.