The Summer Economic Statement this week signposted the way to the last big political act of the Government: the October 1st budget. Paschal Donohoe’s ninth; Jack Chambers’s first; more pertinently, the last before a general election. So what do we know about it? Quite a bit, actually.
The two Ministers with responsibility for the budget announced on Tuesday via the statement that the budget would look not enormously dissimilar to last year. A bit smaller, for now. We’ll see how that goes in autumn.
They will, once again, break the expenditure rule that the Government established in 2021 but has never actually followed. The Department of Finance continues to refer to it as the “expenditure rule”, though in effect the rule seems to be that the rule must always be broken.
[ Government driving a coach and horses through its spending ruleOpens in new window ]
There will also be once-off measures in the budget, probably paid later this year, perhaps in proximity to a certain electoral event. This is the third year in a row for the “once-offs”. And who would bet against four in a row, or five? Perhaps Limerick can’t do it, but the Department of Finance might.
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Between the once-off measures that occur every year and the rule that must be broken, it’s like something from Flann O’Brien at this stage. I am beginning to think that I have got the Department of Finance wrong all these years. These may be signs of a highly developed sense of humour that long observation of the mandarins of Finance had not previously revealed to me. You live and learn, I suppose.
Jack Chambers seems to be settling in quite well. The following sentence appeared in The Irish Times report of the SES announcement on Tuesday: “Minister for Finance Jack Chambers insisted there would be no ‘giveaway budget’ in October, while indicating a package of once-off cost-of-living measures, possibly including further energy credits and increases to the rent tax credit, was still under consideration.”
You could see Donohoe and the finance mandarins thinking: this lad is going to fit in just fine around here.
So what’s in store? The headline figure on Tuesday for the budget day package was €8.3 billion, comprising €6.9 billion in spending increases and €1.4 billion in tax measures. The tax package will be mostly taken up with the costs of indexation and some downward adjustments to the USC for lower- and middle-income earners. The chances of a restoration of the 9 per cent VAT rate for hospitality are slim to zero; it would hoover up half the total tax package and, although Fine Gael and Fianna Fáil TDs love publicans and hoteliers, they don’t love them that much. Already Fianna Fáil thinks that Fine Gael knows it’s not happening but just wants its Coalition partner to take the blame. Perhaps Fine Gael might get a small adjustment of inheritance tax as a consolation prize. Though I wouldn’t bet the farm on it.
The spending side is tighter than the headline figure of €6.9 billion in increases might suggest. Throw in the cost of maintaining the “existing level of services” and a public sector pay deal, and suddenly the pie looks dramatically smaller. The culprit here is, as usual, is the Department of Health, which continues its merry habit of bursting through its budget ceilings year after year. Stephen Donnelly has rightly concluded that the exchequer is not going to stop funding his department after it has spent it budget. The catch-up spending allocated for this year, and the additional money for next year, has led to hopes by some normally sensible people that this step change in health funding will at last allow it to attain an even keel. The phrase in vogue is “rebasing”. Didn’t you rebase health spending after Covid, I asked one person involved this week. Er, yes, came the reply. But we have great hopes this time.
One final point about Donohoe’s management of the budgetary process: it could well spell bad news for RTÉ
So it will be a big giveaway budget again. But Donohoe and Chambers will attempt to construct that giveaway in as prudent a manner as possible. If that sounds like a contradiction, it is and it isn’t: such is the Tao of Paschal Donohoe.
The minister for public expenditure-turned minister for finance-turned minister for public expenditure has grappled with this conundrum before: how to deal with the unending demands for spending increases at a time when the exchequer resources are available but it is patently clear that inflating recurring budgets with revenues that may be temporary would be criminally reckless.
His answer is twofold: first, to invent (with Michael McGrath) the State savings funds, which will see €6 billion set aside this year. And second, to produce a precarious annual balancing act that seeks to find a middle way (very Donohoe, this) between the politics and the economics – that expands spending more than the economists in the Fiscal Council and the Central Bank would like, but not as much as the politicians would like.
The economists don’t have to get elected, the politicians protest. It’s exactly because we don’t have to get elected that you should listen to us, the economists say. The truth lies somewhere in between. It would not be possible politically to hold spending very tight and save the entire budget surplus, especially in the months before an election. But it would be unforgivably reckless to spend it all. Betwixt the two lies Donohoe’s middle way.
One final point about Donohoe’s management of the budgetary process: it could well spell bad news for RTÉ. He has succeeded in manoeuvring the conversation about the future funding of the station into a budgetary context – where it will have to compete for resources with other political priorities. That makes an abolition of the licence fee much less likely.
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