The health of the national economy may not have been much of an issue in the recent general election where a gamut of individual grievances took precedence with many voters. However, a conjunction of events ranging from coronavirus to Brexit may be about to provide the electorate with a rude awakening. They may also provide an opportunity for the mainstream political parties to get their act together and show the public that they have the capacity to provide the kind of government the country needs at a time of crisis.
In a major speech earlier in the week, Minster for Finance Paschal Donohoe accepted that while the outgoing Government had delivered a strong economy, there was a much stronger sense that it had not adequately delivered on services like housing and health. “Having come through the dark days of the economic crash, the people expected us to better meet social needs.”
Yet over the past 12 months he has been getting it in the neck from the Irish Fiscal Advisory Council and a slew of economic commentators for not keeping a tighter control on spending and building up a much bigger budget surplus than he budgeted for.
By contrast, the Opposition parties and a majority of voters took the view that he was not spending nearly enough and they were utterly unimpressed by the fact that he had actually delivered a budget surplus for a rainy day. “As Minister for Finance, for every voice who told me that the surplus was too low, I was met by another equally vocal group who continually advised me that we were not spending enough.” It seems one group of critics doesn’t understand political reality while the other doesn’t understand economic reality.
The problem is that economic reality may be about to intrude with the kind of overwhelming force that manifested itself a decade ago when the country plunged from the exuberance of the Celtic Tiger into the depths of unsustainable debt. It was only saved from ruin by a massive bailout from the European Union and the International Monetary Fund.
This time the threat is coming from three different directions all at once and the danger is they could all combine to wreak havoc with the public finances. While many voters do not seem overly concerned, the impact on living standards will be felt by every family in the country if the worst happens. The three threats enumerated by Donohoe are Brexit, changes in the international corporation tax regime and the coronavirus. Any one of them is capable of doing serious damage but the combination of the three threatens devastation.
Small, open economy The coronavirus is spreading by the day and it is not simply a threat to public health but to the economic prospects of the entire globe. As a small, open economy dependant on world trade, Ireland will be hit harder than most if, as looks increasingly likely, it becomes a worldwide epidemic.
As if that is not bad enough, Brexit has reared its ugly head once more. Boris Johnson’s government is back to playing chicken with the EU and while there is obviously an element of tactics involved here there is a very real prospect that the UK will leave without a deal by the end of the year.
If that happens it will have enormous negative consequences not just on trade between this country and the UK but between Ireland and the rest of the EU as the land bridge across Britain is still essential for so many exports and imports. If Johnson decides to walk away from the agreement to have a border in the Irish Sea, the situation will be even worse.
It is probably unlikely that Johnson will abandon the Irish protocol which, after all, is an international agreement, but the prospect cannot be ruled out. Even in the unlikely event of a benign agreement on trade, the UK will be out of the EU with no transition period by the end of this year. That will inevitably have negative consequences, the only question being how bad.
The third major threat to the public finances is the looming change in the global corporation tax regime. The massive boost in corporation tax receipts in recent years allowed the Government to spend ever more on the health service, not that the public noticed, but when the flow of tax revenue is reduced what then?
This then is the background against which the current political manoeuvring for the formation of the next government is taking place. Fine Gael, Fianna Fáil and the Green Party all accept the Department of Finance projection that there is about €11 billion extra to play around with over the next four years but in the light of what is happening that may be far too optimistic.
Of course, Sinn Féin has blithely ignored these parameters and its promise to spend an extra €22 billion clearly appealed to many voters. Attempting to come up with a realistic programme that can command support from the bulk of the electorate is the immediate challenge facing the other major parties but an even greater one will be how they adjust to deal with unavoidable threats heading our way. The sooner they get into serious talks the better.