Minister keeps health system on life support – but it is destined to collapse
FINANCE ministers always have a “golden rule”, by which they promise to deliver prosperity and stability. Until it all goes wrong, that is. Paschal Donohoe produced his rule yesterday. “Current expenditure growth should not exceed growth in national income,” he said. To judge from the Budget, the reverse also applies. Current expenditure can grow as fast as the growth in national income.
It is hard to see much difference between this and Charlie McCreevy’s oft quoted rule: “If I’ve got it, I spend it.” The opposite applies there also, as we know all too well.
The Donohoe rule made possible a planned increase of 4pc in current spending next year after a 5.4pc increase this year. The effects can be seen in the figure that, after growth of 10pc over the two years, the deficit falls by just one-10th of 1pc.
The last substantial surpluses in the public finances were in the 1990s. Even as the 2000s bubble was about to burst, the planned difference between ballooning revenues and spending was less than 3pc of national income.
True, Mr Donohoe has his rainy day fund, after several years of promises. But such is the political fear of surpluses that it has been presented as spending in the basic Budget arithmetic. Even if it had appeared as a surplus, €500m is not enough to make a significant difference.
Political reaction to the Budget helps explain this fear. The record may go to the Sinn Féin spokesperson who devoted just six words to the need for prudence before embarking on his wish list, but he had stiff competition. Many wanted to spend the rainy day fund as well.
In fairness, it should be said Budget 2019 contains a €1.5bn increase in capital spending. Old golden rules, such as those of Britain’s Gordon Brown, would not have counted that spending at all, so a balanced budget looks pretty good in comparison. But we know how that ended.
Capital spending bore the brunt of the cuts after 2008, as it did in previous crises, so there is a lot of catching up to do. We are promised it will be spared in any future downturn. That would be a lot more credible if there were any substantial fund to fall back on.
The absence of support for a genuine anti-cyclical policy is all the more surprising, given the constant talk of storm clouds on the horizon. The most threatening of these, a disorderly Brexit, seems to have receded, although it has not disappeared. But the horizon remains dark, with trouble in Italy, difficulties in emerging markets and rapid rises in US interest rates.
One could wonder if the Budget Day ritual – which is more elaborate here than in most places – is not itself partly responsible for the difficulties over fiscal strategy.
Of course the pressing problems – once again headed by housing and health – must be tackled, but the nature of the ritual can give the impression that more money is always the answer.
Money is indeed the central subject in the Budget, where the Oireachtas approves the Government’s plans to collect taxes and how to spend them. But the two issues which dominated debate yesterday cannot be solved by money alone.
Not enough houses are being built – not just for the homeless, or those on the waiting lists – but for everyone. Without a rapid increase in the construction industry, a reduction in building costs and a far faster process of getting to the shovel stage, the money will be useless.
These are to some extent contradictory objectives. They go to the heart of a more fundamental problem: that the complexity of modern societies, with their decades of well-meaning regulation, makes government far more difficult.
Something on the scale of post-War building projects in Europe is required. The debate needs to switch as to whether that is possible, and if so how.
Health is a more long-standing issue and perhaps more intractable. The minister does seem to have been able to avoid an embarrassing 2019 overrun by allocating an extra 11pc to the service but most of that is just to keep things running.
Such increases are simply unsustainable – even before one deals with the recent complaints from the consultants’ body about shortages of almost everything.
The housing crisis will abate, even if more slowly than is desirable, but the health service as constituted will collapse as population increases and ageing take their toll.
The only question is how near to financial collapse it has to get before radical reform is accepted.
And then there is tax – or rather there isn’t, because it hardly figured. The old principle applies; that it is not so much the level of tax but whether it is going up or down which matters.
It was still a bit surprising to see Mr Donohoe highlight the fact that any income of more than three-quarters of average earnings would face deductions of 48.5pc after his 2.25pc change in tax bands and USC rates.
There is another golden rule which says tax bands should always be increased in line with earnings. That one was missed as well, as the old reliance on taxing labour continued.
Sinn Féin’s spokesperson devoted just six words to the need for prudence before embarking on his wish list