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It is ironic that the hardline fiscal conservative of Irish politics is Jack Chambers because he wants to control spending
The Government has set a budgetary trap for itself and has no option now but to walk right into it. Its answer to not meeting the great expectations it has built up for budget day through its incessant promises on a whole range of fronts will take two forms.
One will be to overdeliver a little bit on the figures leaked out in recent weeks in key areas of tax and welfare, in the hopes of some grudging acceptance from voters. The other will be the “jam tomorrow” strategy of promising more in budgets to come – additional increases in the tax bands, more on childcare costs, child poverty and helping people with a disability. Like the Metro, we will be told they are all on the way.
Since day one, the Coalition has overpromised on a range of fronts and – by not setting priorities – has made under-delivery inevitable. It only has itself to blame. It started early. Its programme for government , negotiated as a compromise wish list, made a host of promises in areas such as tax, welfare supports, housing, childcare costs, disability payments and many more, with no sense of priority or costings.
The view in Government departments is that you have to get “your” area into the programme, if it is to have any chance of getting extra resources. There is no expectation within the system that everything will be delivered. It is seen as a kind of menu. But the public, quite reasonably, see it as a set of promises to be delivered.
And the Opposition happily remind Ministers of what they said they would do. The second key frame for this budget was, of course, the endless string of promises from Ministers who felt they could not say “no” to any constituency. And so came a list of commitments, featuring Taoiseach Micheál Martin, Minister for Finance Simon Harris and a chorus of supporting Ministers.
We have seen promises of income tax cuts, a “budget for workers”, cuts to inheritance tax, new disability payments, a big move on childcare, measures to address child poverty, a new savings plan and on and on. There is no chance of all the hype being even half-delivered. The Government will make do between “moving towards” various goals and the more-to-come promises.
Income tax payers will get an extension of the tax band and a few other bits – and be promised more ahead. So will parents regarding childcare supports. Work will, no doubt, “continue” in other areas to address areas such as child poverty and disability. The €7.50 increase for weekly welfare and pensions said to be “on the table” will – surprise, surprise – be exceeded.
The €100 culture card for 16-year-olds will sit as an uncomfortable afterthought. The immediate political risk for the Coalition is that it will be seen as underwhelming by the public, beset by higher bills across the board. Harris will no doubt hope that some overdelivery on income tax will mollify them. The figure circulating has been a €400 gain for a single middle earner resulting from the extension of the tax band.
It would be no surprise if, come next Tuesday, these gains rise to €600 to €700 a year, helped by an increase in tax credits and some tinkering with the USC. Double that for a two-income couple and add in a bit of extra childcare help and the Coalition has something to sell. Those on lower incomes will get less in cash terms.
The problem, of course, is the backdrop – higher energy costs, general inflation and rising interest rates are eating into real incomes. And what is provided will be compared to the pre-budget promises to do the devil and all to protect households. Lobby groups will line up to condemn the lack of action on their particular thing. The post-budget debate in the Dáil and outside it will be undertaken on the basis that the money is there.
And also that the Coalition has already spent heavily in helping some of the loudest lobbies – such as the hospitality industry last year and the hauliers this year. Hence the public sector unions feel that a bit of disruption through the work-to-rule now getting under way and a couple of days of action will help their cause.
This unseemly scramble for State resources is driven by the ongoing rise in corporation tax, which remains strong according to Friday’s figures, albeit with the timing of payments from a few big companies unpredictable. And the overall strength of tax revenues in general. This means that even after budget measures the target surplus is likely to exceed €8 billion.
The difference in the negotiations on this budget is that the sums have got a bit tighter, due in part to the drive by Minister for Public Spending Jack Chambers to hold spending growth to 6 per cent next year. This is the correct course. Increases averaging 9 per cent in recent years have opened up the State finances to a higher level of risk.
The first job facing Chambers, which we must presume will be achieved, is to keep spending growth to the target 6 per cent figure in the budget sums. No doubt some “temporary” measures will be added and excluded from the budget sums, either because they will be paid out this year or will be “once-off” in nature. The second, and much more difficult task for Chambers, will be to stick to the 6 per cent through 2027.
Can the Coalition really break from the string of midyear changes and supplementary budgets seen in recent years, which have meant that the budget figures have really only been a rough draft? It seems overruns of roughly €1.5 billion have now been provided for in this year’s figures. The question is whether enough is now provided in 2027 to give a decent chance of coming in close to budget.
Given the budget struggles of other countries – look at France and the UK, for example – it is kind of ironic, as one observer noted, that the hardline fiscal conservative of Irish politics is seen to be Chambers, because he wants to control spending growth to 6 per cent. In France, the latest plan is for 0.6 per cent spending growth. Debate on the Irish budget will proceed in a parallel universe to these international rumblings.
Future economic growth and the ongoing corporate tax bounty will be taken for granted. For now, the Irish economy remains strong. We can only hope that the signals of higher inflation and interest rates and potential international financial turbulence do not upend the sums in 2027. Though, to borrow a line from The Shawshank Redemption, hope can be a dangerous thing.
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