The muted reaction in the Dáil chamber to the speeches of Michael McGrath and Paschal Donohoe belied the fact that this was a significant budget that made two very substantial moves.
Firstly, with at most 18 months before a general election and with the Government parties struggling in the opinion polls, Tuesday’s budget was a huge giveaway to voters.
In line with the plans laid down this summer, recurring expenditure will increase by €5.3 billion, coupled with tax cuts of €1.1 billion. This will be supplemented by once-off cash giveaways intended to assist people with cost-of-living increases, totalling €2.7 billion. But there’s also €4.5 billion of “non-core” expenditure – at least some of which will end up funding public services, especially in health.
Some people will benefit more than others, of course. But everyone will get something. Middle Ireland, the squeezed middle, call it what you will – it was clearly very much in the minds of the framers of this budget.
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Have a look at the budget documentation published by the Department of Finance. There are various worked examples, demonstrating how people in different situations will be affected by the budget changes. One example features the archetypal family unit of middle Ireland – a nurse married to a garda. They have three children, and their joint income is €109,000, the example notes. Tax changes will see them benefit by €1,683. But they will also get the three energy credits, worth €450.
The additional child benefit, another €420. They’ll benefit from the free schoolbooks. They might get the mortgage relief, a maximum of €1,250. All that means they are heading for being €4,000 better off after the budget – and that’s before a new public sector pay deal later this year. It ain’t nothing.
The second major development announced yesterday is a much more far-reaching policy move, arguably one of the most significant in a long time. The creation of two funds into which the windfall corporation tax revenues will be channelled in the future gave concrete form to the long-flagged intention of the Government.
Both the long-term “Future Ireland Fund”, which McGrath suggested will rise to €100 billion by the mid-2030s, and the Climate Fund, which seems intended for more immediate use, will mean that future governments will be forced to constrain their spending, or tax-cutting, ambitions because they will be compelled by law to pay very significant resources into these funds every year.
True, a future minister for finance could seek to repeal the law; no government can bind the hands of its successors. But they can make it harder to do some things, and McGrath and Donohoe have made it harder for a future administration to splurge windfall tax receipts. It is an audacious move.
There are plenty of other questions about the budget, though. The health budget is almost certainly destined for another overspend next year. Needing almost €2 billion to cover the cost of this year’s overspending and the growing cost of providing services, health got just over €800 million extra.
The language about health in Donohoe’s speech certainly did not convey unyielding support for the sector; a new “health resilience fund” funded from non-core expenditure, and a declaration of the need to “improve financial oversight” suggest that Government rumours about furious negotiating sessions before the budget were not off the mark. It seems that funding the stuttering public health service, even as the bills continue to escalate, will remain a headache for this Government.
Repeating the “once-off” giveaways for the second year in a row effectively means that – presumably in the run-in to a general election – there’ll be a third round of the once-offs next year. Seriously, how long more can we call them once-offs?
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As Sinn Féin’s Pearse Doherty noted, the budget is unlikely to shift the dial on housing, by some distance the most politically potent issue, especially for younger voters – for whom, in many cases, it is the only issue. Many opposition TDs complained that the cost of the landlords’ tax concession was nearly twice the break for renters. Big giveaways are difficult to oppose, though; Doherty and some others made a reasonable fist of it.
Nor was there any apparent provision for public sector pay increases. The current pay deal comes to an end shortly. Before the summer there was brave talk about having a new deal finalised before the budget; now they’ll be going well to have it done by the end of the year.
It will not be cheap; every one per cent increase in public sector pay, the Department of Public Expenditure estimates, will cost about €250 million. Budget figures show public sector pay increasing by €770 million, or 3 per cent, even without a new deal.
For many TDs, especially at this stage of the electoral cycle, the politics of the budget are more important than the economics of it. They’re not convinced that saving for the future is all that popular, but they hope that spending right now is. There are grounds for hope for them – last year’s big budget giveaway saw support for the Government parties largely hold steady and even rise marginally during a difficult time when many people were feeling the squeeze from higher bills.
Some Governments are confronted by a sort of test of character – can they take difficult economic decisions when they are needed? McGrath and Donohoe, politicians who grew up through a crucible of economic hardship in their formative years as public representatives, have the good fortune to face a different challenge today.
They have not gone looking for tough decisions to make when the times do not require them. They have not had to choose between spending and saving. They have been able to do both.