INFLATION AND HOUSING WOES
Seven problems that could spook the Government after a muted reception
THE Budget that won’t go away may return to haunt the Coalition. And there are seven spectral issues that may yet spoil the broth. A budget these days that does not inspire rioting in the streets is deemed to be a success. It’s a pretty low bar, admittedly, but Budget 2022, outside of a few rattles, appears to have cleared it.
This has been a Budget that provoked sleeping rather than rioting.
However, the sense is growing that the escape from disaster may be more temporary than the Coalition might like.
So, where could the Budget start to go wrong?
THE INFLATION WILD CARD…
This is the wild card that cannot be controlled and Finance Minister Paschal Donohoe knows it.
For now, it is still in its kennel, but it is barking a great deal more and yanking at its chain.
The worrying thing when it comes to Ireland is that we have a political and administrative elite that has no experience of dealing with inflation. But it is coming. In Ireland, annual inflation reached 3% in August – the highest since August 2008. In America, it has reached 5.4% In Europe, it is expected to hit 3.4% in September, the highest since September 2008.
As inflation hits its highest levels since 2008 in Ireland, Europe and the US, Paschal and the Department of Finance have done their best to perfect their ‘move along there, nothing to see here’ line.
The experience of shoppers, or anyone who drives a car, however, suggests that the ‘temporary phenomenon’ has gone well past the 3% mark already.
For that strong majority of people, the Government’s budgetary assurances are as convincing as the captain of the Titanic saying there’s no need to rush for the lifeboats. As the Government tiptoes ever so carefully through the minefields of inflation it is a case of being careful, ever so careful.
INTEREST RATES… THE HIDDEN KILLER
It is a fiscal first cousin of inflation but the possibility of rising interest rates merits inclusion in its own right.
The Government is invisibly spooked by this strange new thing.
During the Budget, Paschal resembled the country and western song about how it takes a worried man to sing a worried song.
When it comes to a plan to deal with any rapid rise in interest rates, there doesn’t appear to be one.
Paschal though is acutely aware that we are at the edges of a ‘Don’t panic’ moment.
Money may be for free now but as the national debt tops €240 million, Paschal dolefully noted that the time is coming where ‘pricing will be on less favourable terms highlighting the importance of slowing the pace with which public debt is accumulated’.
Commenting on the State debt, he added: ‘This is not where we want to be when interest rates start to rise again.’
Once again, just like in 2008, Ireland will have to be ‘lucky’ if we are to escape the hidden killer of an inflation-fuelled spiral in debt rates.
If we don’t, like 2008 all over again, the Europeans may come looking for their money.
RURAL IRELAND… SHREK IS NOT HAPPY
For now, the rural rumble has been stifled by the sheer weight of the billions. But the backlash (and a carbon budget) is coming.
When it does, a lot of smirks about Shrek racing out from the rural swamp will leave a lot of faces. As the carbon taxes start to bite, the public will be looking for scapegoats.
And they will be more than willing to buy into the opposition two-for-one offer that a sinister cabal of Greens is pulling the strings of Fine Gael and Fianna Fáil.
The Greens may be carrying on merrily with their proposals to cut lumps out of the national herd to pay for huge Metro schemes in Dublin. But they are creating a political noose for their political partners and if everyone is not very careful the three parties may hang collectively on a platform of Green Party hubris.
HOUSING WOES
The Government is betting the pot on housing. Nothing epitomises its slightly chaotic performance than the zoned land tax.
Having conceded that the levy isn’t working, the Government committed to continuing with the same failed scheme for the next two years.
A far more dangerous variant though may be the leaving behind of ‘generation rent’ by a cabinet of landlords.
Ministers said the zoned land tax would free up land for residential use. But with it not being brought in until 2024, renters will have to wait years to see a difference, if any happens at all.
Renters were left out on a number of other fronts too.
Landlords got a tax break for pre-letting expenses, which will be extended for another three years to encourage them to return empty residential properties to the market.
The help-to-buy scheme was extended for another year, despite warnings from critics that it would further push up house prices.
When it comes to renters, though, the Government adopted a position of abandoned helplessness.
The only plan for those apparently is to build more houses and hope landlords take a notion to cut the rent. It hasn’t convinced our renters who are looking evermore fondly towards Sinn Féin.
MICA – THE SCANDAL THAT WON’T GO AWAY
Who will pay, and how much will we pay, is the dilemma.
Solving mica has been this Government’s equivalent of Solomon and the baby. So far, the instinct of this lot appears to be to cut the baby in half.
Should that happen, when it comes to this already runaway furore there will be no soft landing.
Unease has already grown over the failure to include mica in the Budget, with mica campaigners warning ‘were this a budgetary measure, people would be more confident. It would be nailed down’.
The concern, they said, ‘is that after the Budget as they head into the recess we will be told, “Sorry the money has run out”’.
The far-sighted Fine Gael TD Joe McHugh has also warned: ‘There is a trust issue now. There have been too many promises and too many postponements.’
This, he added: ‘is an issue that must be resolved in the shortterm. It has been going on for a decade. The level of anger will be huge if the people have to engage on a third Dublin protest.’
The (ahem) good news is that Darragh O’Brien is looking after things. Everyone will be sleeping easier on hearing that.
THE PANDEMIC ‘DIVIDEND’
One of the most often forgotten principles of good political judgment is that giving can be even more dangerous than taking.
The problem with both of course is that someone always loses out and they tend to make a lot more noise than the quiet recipients.
Still, nothing epitomises this Government’s capacity to turn wine into water more than the gathering sense of chaos attaching itself to the pandemic dividend.
The retreat from half a billion in bonuses and ten days in holidays to a bank holiday weekend should be interesting... especially given that they’re already squabbling over the date of the bank holiday.
The pandemic dividend was kept out of the Budget lest this rogue variant spoil the fancy fiscal footwork… and, more importantly, still the mood.
However, it is lurking around in the long grass and too much fine sentiments and thoughtless tweets mean that when it is finally confronted the smart odds are that no one will be happy.
A bank holiday may seem like a small thing but, in Gulliver’s Travels, a war was started in Lilliput over which end of the egg to crack.
HEALTHCARE… THE OLD RELIABLE
In a speech that caught a great deal of ministerial attention, the state of the nation’s healthcare was summarised by Tipperary TD Michael Lowry.
He asked why, as we continue to pour money into the HSE, our health system seems to get poorer.
He summarised the HSE as simply not being fit for purpose. It was, he said: ‘Top heavy with managers while way too few hardworking healthcare staff struggle every day to provide care at all levels across the country.
He said: ‘Reform is obstructed by vested interests within the system that screams, “Do not disturb” and “Hands off”.
‘Too many people within the system are determined to throttle and to choke change because it would impact the current arrangements they have.
‘Issues are dealt with in such a way that they are everybody’s problem but nobody’s problem.
‘The public dealing with the HSE finds it frustrating, irritating and incredibly time-consuming.’
He added: ‘The catalogue of neglected patients is rising sharply (so) our courts are busy with medical litigation.
‘The stress and strain of the workload is resulting in sick leave and acting as a deterrent to recruitment.
‘People right across Ireland live in abject fear of needing healthcare.’
Over to you Stephen Donnelly … when you are finished with coronavirus, obviously.
ANALYSIS …
Normally, a budget signals the beginning of the end of the political year. This Budget has so many loose strings we are not even at the end of the beginning. When it comes to the various hydras it may face the Government may get lucky. For now, the Coalition is adopting a confident front. The secret fear is that they are flying blind… without a parachute.