In the Minister’s meeting room in the Department of Finance, there are portraits of all those who have headed the most powerful department of the government.
From Eoin MacNeill in the First Dáil and Michael Collins and Ernest Blythe to Charlie Haughey and Bertie Ahern and Brian Cowen and Michael Noonan, they’re all lined up there, side by side, a mixed bunch for sure.
Charlie McCreevy, the Minister who rode the Celtic Tiger hardest, liked a bit of razzle dazzle on his budget days. In the days when the contents of budgets were more closely guarded, McCreevy didn’t just enjoy the theatrics of the big reveal on the big day, he believed it was an important part of communicating the budget to the public. His policy instincts tended to the radical, and there was more than a bit of the showman about him.
That is not, it is fair to say, the tao of Paschal Donohoe.
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After nearly a decade as either Minister for Finance or Minister for Public Expenditure or as both, Donohoe has now delivered more consecutive budgets (10) than anyone in his list of predecessors (Sean McEntee has one more in total: eight in the 1930s and three in the 1950s). None of Donohoe’s budgets have been exercises in showmanship. He is a steady-as-she-goes man, not given to dramatic lurches in spending or tax policy, an incrementalist, a centrist, a firm and unshaky hand on the fiscal tiller.
His latest budget – delivered with Fianna Fáil’s Jack Chambers, who has inherited Michael McGrath’s role as the other half of the Government’s strongest cross-party axis – sits squarely in this tradition.
It is more restrained than recent editions but it does not mark a drastic change in policy either. After a series of giveaway budgets necessitated first by Covid, then by the cost-of-living crisis and then by the political imperatives of a looming general election, Donohoe and Chambers cut the level of spending growth, ended the repeated “one-off” cash giveaways, promised a hefty surplus, transferred money into the Government’s savings funds, and increased investment spending.
But if some of the excesses of recent years – especially last year’s package, delivered a few weeks before the election was called – have been curbed, this is no hairshirt budget either.
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Spending will rise by €8.1 billion next year, made up of €6.1 billion in current spending increases and an additional €2 billion for capital projects. That will bring overall voted spending to nearly €117 billion next year. As well as that, there’s a further €16 billion in non-voted spending, largely made up of contributions to the EU budget and interest on the national debt. So the total cost of running the country next year will be about €133 billion. In this context, an increase in annual spending of €8 billion is chunky enough.
But it’s never enough. There are demands across the system for additional spending on a variety of subjects, some more deserving than others. Every budget is about choosing between them. And some of the choices outlined yesterday are likely to be contentious.
Much of the available tax package goes on VAT reductions. The success of the hospitality industry in persuading Fine Gael to insist on a VAT reduction in the Programme for Government is not just – as the party would have it – evidence of its commitment to small business; it shows that in Irish policymaking, those who shout loudest tend to be heard the most.
Poke into the budget numbers and you see that public sector pay increases will cost an additional €1.2 billion next year. Many Government departments will see their bills go up by 9-10 per cent and there will be an extra 13,500 public servants next year, bringing the total number of public employees to 440,000, an increase of 66,500 in the past five years. Though this tends not to be a point of political contention, where the only pressure is to hire more public servants.
The Government is chancing its arm describing the changes to third-level fees as a reduction; even students who aren’t studying mathematics can see that getting rid of a €1,000 reduction and replacing it with a €500 cut means an increase of €500.
Donohoe mustered some fiscal firepower and aimed it at apartment building, cutting the VAT rate in a bid to close the “viability gap”, which has cut the supply of apartments. It might help, but it’s hardly a game-changer.
More broadly, there is little in yesterday’s budget for the middle ground that is comparable to the giveaways of last year. Middle income workers with children and childcare bills and mortgages might have benefited by more than €3,000 last year. Nothing like that this year, folks.
That might be why there are no case studies in the budget documentation showing people how much they will benefit. Because they won’t.
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But this is what caution looks like. For all the talk of “missed opportunities” from Opposition parties and interest groups, the people who are supposed to advise the Government on prudent fiscal policy – the ESRI, the Central Bank, the Fiscal Council – all say that the budget should be spending less, not more.
But budgets are about politics as well as economics, and prudence has a mixed record as a political strategy. Pre-election spending sprees have a reasonable record at helping governments win elections. For that to work with voters though, a government has to have some degree of economic credibility. That cannot be earned overnight; it requires some work in the years beforehand.
And so, with no sign of last year’s goodies, this budget presents, more than most, a challenge of political and political communication. That task falls to a Government which, at the moment, seems ill-suited to the task.
