Election casts its shadow over budget

Finance Minister Michael Noonan will next week present the last budget before the general election, which must be held before April.

The budget will lay out the Government’s plans for taxation and expenditure for 2016, and it is expected that Mr Noonan will deliver a budget package of around €1.5bn.

This stimulatory package is expected to be split roughly 50/50 between tax-reduction measures and expenditure increases.

In the context of an economy likely to exceed €200bn in size this year, a budget package of this magnitude is pretty miniscule, but coming as it does after a number of years when successive governments extracted a lot of money from the economy in a series of pretty savage budgets, Budget 2016 does represent a welcome change.

Given it will be a pre-election budget, the likelihood is that a scattergun approach to fiscal management will be adopted, with as much money as possible thrown at as many areas of the economy as possible. Most of us will end up slightly better off, but very few, if any, will be significantly better off.

That is the nature of the annual budget, but particularly so in an environment when government fiscal policy is heavily constrained by the still difficult public financial situation, as well as the external surveillance that is part of life in the EU, and particularly for a country that recently exited a bailout programme and which still owes a lot of money to a lot of people.

The Government will be hoping to curry favour with a pretty disillusioned electorate on October 13. While this will be difficult to achieve in a single budget, the Government should lay out clearly over the coming weeks what it intends to do on the taxation and current expenditure front over the next five years, if re-elected.

Obviously laying out a medium-term budgetary framework is fraught with difficulty, because in the world of economics and finance, the one thing we should always expect is the unexpected. It is still a worthwhile exercise and will show the electorate what is possible.

This week, the Government laid out its plan for capital expenditure over the coming years. Some will obviously react cynically and argue that this is just a pre-election ploy.

However, it is good to have such a blueprint. Past plans have been extremely effective in delivering such infrastructural projects as the mostly top class road network that we now have.

Critics will, or, perhaps, should, struggle to find too many faults with the capital expenditure plan.

Between 2016 and 2021 a €42bn capital investment framework will be implemented, or at least that is the theory, if economic circumstances allow.

Obviously if economic circumstances were to deteriorate for whatever reason, certain elements of the plan would have to be scaled back, but that’s just the reality of life.

Of the proposed €42bn in expenditure, €27bn will come from the exchequer; €500m through public private partnership; and the State-owned sector will invest €14.5bn.

Transport, education, housing, healthcare, and flood prevention will be targeted in the programme.

The State-owned investment is set to come from companies like Irish Water, Ervia, and the ESB, and will be directed towards areas such as renewable energy, and the enhancement of water and waste water infrastructure.

The badly-needed rail link from the main access point to the country, as in Dublin Airport, to the city centre and beyond the airport to the area around Swords is very good news.

The disappointment is that it will not be completed until around 2027, at which stage I should be able to travel on it free of charge. It is also disappointing that the road from Limerick to Cork does not feature. It is a nightmare.

While there is already criticism that much of what is contained in the capital plan is not new, the correct response is ‘so what?’

The important point is that a formal plan is now in place to deliver much-needed social and economic infrastructure, and will go some way towards correcting the massive collapse of capital spending since 2008 while at the same time enhancing the growth potential of the economy.

Bring it on.

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