The first Varadkar/Donohoe budget suggests they plan another one before an election

During his campaign to become Fine Gael leader and Taoiseach Leo Varadkar used divisive language about wishing to support “people who get up early in the morning”. As Taoiseach he has sought to use more unifying language about wishing to create a Republic of Opportunity.

Yesterday we got a chance to see did either piece of rhetoric mark a real statement of political intent. And when it came to it, Budget 2018, announced yesterday, gave some modest tax breaks to middle earners, a €5 increase in basic welfare payments, and some targeted increase in spending on health and housing.  In short, it gives a small amount of opportunity to people who get up at all times of the day.

This Budget comes at the end of a decade that began with the bank crisis and fiscal gloom, and continued into austerity, high taxes and public service cuts. While there is now relative fiscal health, strong economic and employment growth, this Budget was never going to mark a neat end to that decade with a transformation either of take-home pay or of public service provision.

This is because the fiscal space remains small.  Or to put it another way, there is still not a large amount of spare money in the Government coffers. So with its fiscal room for manoeuvre pretty limited, the Government determined to use the Budget to make as strong a political statement as possible. 

That statement is intended to say that we are cautiously entering a new era.  The national books are (almost) balanced for the first time in years; there will be (very) modest increases in take home pay for many at work, there will be welfare increases of €5 a week and there will be additional spending targeted at health, housing and other priority areas.

Economically and financially the effects of the budget measures will be very modest.  Many will barely notice the income tax and social welfare changes; few people will discuss the balanced national accounts in the pub on Friday night.  But what the Government hopes they will pick up is a sense that a line is being drawn under a period of considerable hardship.  They hope that despite the Government’s minority status, it will be seen as one that is Ieading the country into a new phase.

The Minister Paschal Donohoe outlined the evidence at the start of his speech yesterday. The economy will grow by 4.3% this year and a projected 3.5% in 2018.  We have had 19 consecutive quarters of economic growth.  The unemployment rate is now 6.8% and will fall to 5.7% during 2018.  Six years ago it was over 15%.  We have had 19 consecutive quarters of economic growth.

When these indicators are going in the opposite direction, governments tend to blame international economic conditions.  There was no such looking outwards yesterday.

Almost everything announced in the Budget had been flagged well in advance.  It is interesting to note how relatively little the Minister for Finance had with which to increase spending, or reduce taxes.  Out of about €60 bn in spending for 2018, around €59 bn is already committed to existing public services.  Mr Donohoe reduced income taxes by €335m, and increased spending by €900m.

The final package emerged from the political reality that this is an unusual Government:  It is composed largely of Fine Gael Ministers, with a couple of Independent ministers in exchange for support from a group of such independents, and with support from the main Opposition party Fianna Fáil.  Each component wants to claim credit for elements of it, and they have been doing so loudly for several weeks in carefully staged political theatre.

So we have had Fianna Fáil saying that it alone is responsible for a reduction in the pupil teacher ratio by one.  We had Fianna Fail insisting USC be cut, while Fine Gael insisted on increasing the threshold before middle earners enter the higher tax band.  Surprise surprise, they did both.

Then we had Independent Minister of State Finian McGrath saying he couldn’t support the budget unless it involves funding of the decision to support the UN Convention on the Rights or the Disabled.  And this was done.  So everyone on whom the Fine Gael government depends politically was given something to claim as their victory.

One of the few revenue raising measures was the increase in stamp duty on commercial property transactions from 2% to 6%.  The fact that this stood at 9% quite recently meant there were no audible complaints about this.  Anecdotal evidence is that there was a flurry of commercial property transactions completing in the 48 hours before the budget to avoid the new higher rate.  The Government decision to have a Dáil vote on this last night means there can be no eleventh hour lobbying campaign to reverse it.

In summary, as many commentators have already said, there is something modest for just about everyone in this Budget.  However the commentary saying this suggests Mr Varadkar is preparing for an early election is too easy.  A party preparing for an election would target measures strongly and loudly at their target voter segment, and for Fine Gael this would be the middle earners, or those characterised by some as early risers.  The Budget has given something to many more voter cohorts than this group, and can be seen as a signal to the broader public that the Government believes the years of retrenchment and hardship are ending. 

The benefits of this may not be seen very dramatically in this Budget.  But this Government may well hope to be demonstrating this more clearly in its third Budget next year, before it asks for public judgement in an election.

Mark Brennock, Director of Public Affairs

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