FACE OFF
FF’s McGrath and FG’s Donohoe at odds over post-Covid tax and spend plans
A SPLIT is growing between the ministers in charge of Ireland’s post Covid-19 economic recovery, the Irish Mail on Sunday has learned.
The revelation comes as the Government finalises plans for the ongoing reopening of the economy into the summer months.
Under the plan, it is expected the Cabinet will extend coronavirus packages such as the Pandemic Unemployment Payment (PUP) and employer supports beyond June to ease the country back to economic stability.
But despite increasingly positive tax returns, tensions are growing between the expansionist plans of FG Finance Minister Paschal Donohoe and the more cautious approach being taken by his FF counterpart in the Department of Public Expenditure and Reform, Michael McGrath.
The Fianna Fáil minister has already signalled that retaining the PUP and other emergency measures beyond June will result in the Exchequer having to borrow more.
One Fine Gael minister summed up the difference in approach between the ministers: ‘It’s Paschal the big spender versus Michael the cautious “mind the pennies” man. Who knew Fianna Fáil would be the bad cop in this relationship?’
Another source said: ‘Paschal has swallowed the current “spend until you drop” orthodoxy wholesale. Michael is the one taking the punchbowl
‘Who knew FF would be the bad cop?’
away from the party.’
A Fine Gael minister said: ‘McGrath is fighting the last war. Fianna Fáil are haunted by the claim that they destroyed the economy. They are afraid to be bold.
‘Fine Gael are after being kicked in the teeth twice by the electorate for being fiscally prudent. We are not going for the three-in-a-row.’
This view was echoed by a Fianna Fáil minister, who complained: ‘McGrath makes Paschal look like Father Christmas. He won’t spend a penny. He is the new Brendan Howlin.’
Outside of increased expenditure on health, the Government is also facing the prospect of decreased revenues of up to €2bn in corporation tax. One senior Government source told the MoS: ‘Everything is being looked at, including prior unthinkables like a wealth tax. Carbon tax cannot fill every hole and we can’t tax work. There is, though, a huge nest egg of over €800m in private wealth.’
A minister said: ‘To borrow a phrase from a popular drama series, “winter is coming” – and if we do not manage the economy very carefully, trouble lies ahead.’
Another senior Government source said: ‘Within Fine Gael, and Leo particularly, Joe Biden is casting a long shadow. They are followers of political fashion and currently taxing wealth and spending big is in. If America can have a wealth tax, why can’t we?’
One senior Fine Gael source said: ‘Leo has been increasingly anxious to get across that Covid-19 has reset the dial when it comes to spending and the economy.’
Easing numbers off the PUP is seen as the biggest challenge in returning the country to some form of fiscal orthodoxy.
As the retail and hospitality sectors return, employers are already complaining over difficulties in recruiting staff for low-paid jobs.
At the end of April some 403,000 people were on the scheme.
The Government believes that opening up will reduce these numbers by 100,000 in June.
One Government source said the Coalition faces a major headache as it attempts to walk a tightrope act of balancing the books without raising taxes. They warned: ‘We are facing a really serious battle in Europe to retain corporation tax, even in a reformed state. Europe is going to play hardball with the euro stability fund. There will have to be some rough trading.’
Significantly, Ireland currently has €139bn in household bank deposits, while a Central Bank Report in February revealed that overall Irish household wealth is at an all-time high of €831bn.
Labour finance spokesman Ged Nash said an asset or wealth tax of a modest nature could raise up to €2bn for the Exchequer.
Deputy Nash said that even the IMF is calling for a global ‘solidarity tax’ on high rollers.
He told the MoS: ‘We have already seen the Biden administration and even a Conservative UK chancellor make moves in this direction.’
There are also gathering concerns over unemployment, with one Minister noting: ‘We have to face the
reality that we are living in an age of mass unemployment. How are we going to get the 400,000 on PUP back to work?’
Another Minister warned: ‘The year can be divided into two: we are having a good first half of the year with the vaccines out and Ireland opening up and a brilliant July and August, and [then] we are going to have an awful second half of the year.’
Another Cabinet source said there were ‘landmines everywhere’. They added: ‘We have been in a state of suspended animation. Trying to restart the economy will be like trying to restart the car in the driveway after six months – or in our case two years.’ A Government source said: ‘There is a hole in the fiscal bucket, and someone is going to have to fill it. The free money cannot go on forever.’
Mr McGrath last night insisted he had a good working relationship with his Cabinet finance colleague, despite their different approaches.
He told the MoS: ‘Minister Donohoe and I are working closely together as you would expect given how closely connected
‘We’ve been in state of suspended animation’
the work of both our departments is.
‘We share the same objective of bringing about economic recovery and managing the public finances in a responsible and careful way. The approach we are taking on both fronts is an agreed one, and is in line with the policy of the whole Government.’
However, some of own his own Cabinet colleagues remain unconvinced. One FF minister told the MoS: ‘There is a bit of the “he would say that wouldn’t he” surrounding it.’