The Coalition needs to act decisively and courageously in the coming months to dispel the impression of drift and indecision that has taken hold since it took office at the beginning of the year.
Next month’s budget will be a critical test. If it opts for another large giveaway, continuing all the supposedly once-off payments of the last three years, then it will rightly be accused of putting the long-term interests of the country at risk in a volatile world.
The once-off payments were justified in response to Covid and the cost-of-living crisis. Their continuation for a third time in last year’s budget was not appropriate in economic terms, even if it made political sense.
We are now at a very different stage in the electoral cycle. If the Coalition can’t summon up the courage to end these payments in its first year in office, it will send a very bad signal about its ability to make any kind of difficult decisions in the years ahead.
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Minister for Finance Paschal Donohoe and Minister for Public Expenditure Jack Chambers have to dig their heels in and resist the demands of their colleagues for a continuation of sweeteners such as the subsidy on energy bills. If they don’t, the exchequer could be left dangerously exposed in the likely event that the international climate takes a sudden turn for the worse.
There is every chance of that happening in the near future, given the capricious behaviour of Donald Trump and the counter reactions he is provoking across the globe. The agreement between the European Commission and the United States on a 15 per cent tariff came as a relief to Irish policymakers, but there is no guarantee that Trump won’t change the rules again.
The other side of the coin is that there has been hostility across the European Union to the deal negotiated by Ursula von der Leyen and her team. The European Parliament is being pressed by the Socialist Group to veto it. Fears about the likely impact of such a move on US support for Ukraine may save the deal for the moment, but there is no guarantee that it will last.
Given that this country’s current prosperity is reliant on international trade, and particularly the export performance of a handful of US multinationals, a trade war between the EU and the US would have a much more damaging impact on us than on almost any other EU state.
Donohoe and Chambers will be aware of this background as they draft the budget. Their Cabinet colleagues who appear oblivious to the danger should realise that the reason that Ireland managed to come through Brexit, Covid and the cost-of-living crisis in good shape was that the exchequer was in such a healthy position to begin with.
The credit for this is due to Donohoe, with the support of his former partner in Merrion Street Michael McGrath. He will be mindful of the need to ensure that the country is prepared for another economic shock. There are enough storm clouds on the horizon to justify caution.
A realistic budget which calls a halt to universal once-off payments, while increasing targeted supports to the less well off would be an important signal that the Coalition is capable of governing in the long-term interests of the country rather than continuing to court short-term popularity
The Government is already committed to spending more than €100 billion on State investment projects between now and 2030. It also has to find the money for investment in the Defence Forces. These commitments have to be the priority in the coming years, rather than squandering money on energy subsidies, which go to rich and poor alike.
It is doubtful, in any case, whether these payments do very much for the Government’s popularity. Many middle- and higher-income earners may not even be aware of the money going into their bank accounts every month.
Since 2022, more than €16.5 billion has been spent on these once-off supports. As Cliff Taylor pointed out in this newspaper recently, that sum is probably enough to have built the metro, while the €570 million spent on energy credits last year would have paid for the extension of the Dart to Drogheda.
The other point is that repeating the once-off payments for a fourth year in a row would make them permanent as far as the electorate is concerned. That will only make the potential outrage all the worse if and when they have to be abandoned in the face of an economic downturn.
A realistic budget which calls a halt to universal once-off payments, while increasing targeted supports to the less well off would be an important signal that the Coalition is capable of governing in the long-term interests of the country rather than continuing to court short-term popularity.
Due to a combination of luck and good management, the Irish exchequer is in a far healthier position than many other EU states, never mind the UK, which is facing a combination of spending cuts and tax increases. There can be no excuse for squandering the benefits of the decade-long boom in tax revenues in the face of so many looming uncertainties.
