A clear danger is emerging in the run up to October’s budget. It is that all the spare cash available will be spent as Fianna Fáil and Fine Gael each try to get as many of their own policies into the package as they can, with the Independents also pitching in. Rather than taking a balanced view of the outlook, the negotiations thus turn into a haggling exercise.
There were media reports this weekend of – unnamed– ministers saying that the economic outlook had not changed much and the budget can go ahead as planned. In this context, pressure will come on, in addition to the €9.4 billion package of tax cuts and spending increases outlined in the Summer Economic Statement, to have additional once-off measures. Ministerial statements, while suggesting there will not be a full cost-of-live package, have become more equivocal on this point.
Ministers may be correct to believe that the short-term budgetary outlook has not changed markedly, with the US and EU striking a trade deal. But two points are relevant here. The first is that the two sides have really just set a framework for future talks and a lot remains to be signed off. Also, a separate US investigation into the pharma sector carries danger for Ireland.,
The second point is that, as Gabriel Makhlouf, the governor of the Central Bank has said, the Government needs to be careful not to add further demand to an already strongly-growing economy. This is all the more the case given the significant planned increase in State investment.
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The balance will be hard to get right. But it must err towards caution. As well as the short-term issues, the economy is now facing significant uncertainties over the next few years. The trade environment is far from settled and tensions between the US and EU may still emerge. Meanwhile, the US president is determined to attract pharma investment back to the US from countries such as Ireland and this could threaten both jobs and tax revenue. And that is before we consider a troubled and rapidly changing international political situation. Ignoring these factors and squabbling over budget giveaways is the wrong approach.
