Honesty is the best policy for Budget 2018
‘EXPECTATION is the root of all heartache” – William Shakespeare.
Don’t expect much and you won’t be disappointed is the general prologue to Budget 2018. So far, the traditional speculation and kite-flying from inside the inner sanctum on budgetary matters has been smothered. Finance Minister Paschal Donohoe has placed an omertà on everyone to avoid any misplaced expectations.
In communications terms, a little peculiar perhaps, given that Budget 2018 is to be the first fantasy showroom for the continually vaunted ‘Republic of Opportunity’.
Any government representative who is pressed on the airwaves to speculate on the contents of Budget 2018 has slavishly followed the same script. Indications are Budget 2018 is going to be a book-balancing borefest.
While this is a politically responsible message, they are missing the opportunity to craft a deliberate narrative about consolidating the growth of the economy and protecting it jealously and vigorously.
One might have imagined the new super-duper spin-room in the Taoiseach’s office was only chomping at the bit to get its crayons out on a set piece like this.
If this Government’s record to date is anything to go by, Budget 2018 will probably result in moderate positive changes for middle-class workers. It will package up all the goodies and present them with a big shiny bow, then offer them to the public nicely gift-wrapped in a larger, wider, longer road map which promises a brighter future somewhere over the rainbow. Promises that remain in sight, but always out of reach.
Most economic forecasts predict that the Irish economy will grow by an average of 3pc to 4pc over the next five years. When set against European growth rates, it appears an impressive cushion for any government. But the figures are not set in stone and are wide open to risks. Some threats are external and economic, others are domestic and highly political.
Next year, the Government’s books will be balanced for the first time in a decade. It’s a significant achievement, which should be acknowledged. However, maybe it’s not quite time for celebrations just yet because the legacy of debt from the financial crisis remains pinned to our collars. Caution is not misplaced, but prudent and understandable.
Against that backdrop, the pressure on Mr Varadkar to perform and deliver politically is palpable. And while Fine Gael has been in Government six years, the forthcoming Budget is one of many firsts.
He may have passed his 100th day in office largely unscathed, but politically speaking Leo Varadkar is still very much finding his feet as Taoiseach. Crucially, it is also his first budget outing as leader of Fine Gael. The approach his Government takes in Budget 2018 will be tied around the neck of every Fine Gael TD and Independent minister who will face the electorate whenever Fianna Fáil decides to pull the plug.
Paschal Donohoe is clearly in the driving seat for this Budget, but it is An Taoiseach Leo Varadkar who will be awarded ownership of its ethos and political ideology. A new leader who is very much on probation with his own party and with the electorate. Budget 2018 will demonstrate whether Leo Varadkar is as good at governing as he is at campaigning.
Paschal Donohoe, too, will experience his first budget completely in charge of proceedings. Although Mr Donohoe has proved competent and impressive in his role at the helm of public expenditure, he will now be riding the bike without stabilisers. Therefore, he also bears a heavy burden of political responsibility for keeping the show on the road.
He needs to protect the growth in the economy while ensuring that Fianna Fáil is appeased enough to remain in the current confidence and supply arrangement. Let’s face it, Fianna Fáil is not shooting up the polls for behaving politically responsibly, so it needs to begin leveraging some positive authority.
At the same time, the Government cannot appear to succumb to Fianna Fáil’s demands for the sake of remaining in power.
The first sign of dissent from within Cabinet came this week as Budget meetings between the Finance Minister and Independent Alliance members were fraught. There is a growing annoyance from Independent ministers that although they are part of the decision-making process, they are somewhat side-lined when announcements are being made. Their role in the Government must be clearly visible in Budget 2018 to avoid further resentment growing.
Aside from the political considerations, there are serious macro-economic factors to ponder when guarding growth in particular. These issues cast a panoramic pall over this Budget. They are housing, household credit, Brexit and the US multinationals.
It is widely accepted supply is the Government’s greatest issue when it comes to housing. In solving the issue of quantity, the Government needs to tread carefully to ensure the housing market does not become expansionary again in the longer term. Neither does it want a reoccurrence of the crisis around credit streams that fuelled the property market before.
The second domestic concern is household credit. With domestic debts reducing, more income is available for consumption. Banks go back to lending, people go back to borrowing and the cycle begins again.
The two external risks which face the Government in terms of protecting growth are Brexit and what (if anything) can be done to consolidate and protect the US multinationals located in Ireland.
Much of our Brexit debate has centred around the geopolitical concerns in the EU and the question of our Border with Northern Ireland. But there is a much simpler way to look at this from a growth perspective. Our nearest neighbour and largest trading partner, the UK, is on a downward trajectory. If it does badly, so will we. If trade barriers are introduced, our situation becomes even worse and it will have a long-term impact on our growth and our public finances.
The second external threat to growth stems from US companies in Ireland, which contribute approximately €16bn to our economy. They provide a huge boon to economic and social activity either directly or through taxes, ancillary spending, or capital investment. Many green-eyed governments in Europe look upon Ireland’s bonanza with envy. Any potential move to consolidate corporate tax rates across Europe would severely affect Ireland. We cannot guarantee there will not be external changes.
We are living in unprecedented times. Worldwide events can exact brutal vengeance on Ireland, as we learned in 2008. Even the limited measures the Irish Government can change are constrained by the parameters of new politics. Domestic political problems may appear insignificant when compared to the vagaries of international developments, but unless they are managed they provide yet another obstacle to protecting our economic growth.
Instead of presenting a Budget which revolves around the political electoral cycle or panders to political acclaim, more emphasis should be placed on the tricky world in which we find ourselves. No legacy is so rich as honesty.
The pressure on Mr Varadkar to perform and deliver is palpable