Jim Power: The best way to eat an elephant is in small pieces

There is an old Chinese proverb to the effect that the best way to eat an elephant is in small pieces. This analogy should equally be applied to budgetary policy, writes Jim Power

The Minister for Finance delivered a modest budget package that ended up making the majority of people slightly better off, but nobody significantly better off. One farm leader described it as a budget that was “an inch deep and a mile wide”.

I wish I had thought of that one. It describes exactly the budget strategy, but that should have come as no surprise to anybody, given the constraints and challenges facing the Minister.

The political response to the latest fiscal offering was bizarre but very predictable. Those on the opposition benches couldn’t find anything positive to say about the budget and some even described it as the best missed chance in a lifetime to make real change. Such comments either display a real ignorance of fiscal policy or — more likely — is just political opposition for the sake of it.

This week’s budget most definitely did not represent the biggest opportunity in recent years to markedly change Irish society. Thanks to stronger growth and tax increases totalling €830 million, the available fiscal package or so-called ‘fiscal space’ was increased to €1.23 billion. Almost 73% of this space was used to boost government expenditure — mainly health, education, and justice. The remaining 27% was used to deliver a very modest easing of the personal tax burden.

However, in the context of total government expenditure of almost €61bn and tax revenues of over €53bn, a package of €1.23bn is pretty miniscule and this was very much reflected in the nature of the package delivered.

The basic strategy in the budget was to ease the personal tax burden, address the serious problems in the housing market, and improve the quality of three public services in particular – law and order, health, and education. By definition, one budget comprised of a package worth €1.23bn was never likely to achieve anything but limited impact and success. To suggest it was a missed opportunity is simply mad.

There is an old Chinese proverb to the effect that the best way to eat an elephant is in small pieces. This analogy should equally be applied to budgetary policy. This week’s offering should be seen as an incremental approach to sorting out the obvious problems in the Irish economy and society. Just imagine if the approach evident in this week’s offering were to be repeated over five successive budgets. The impact on the personal tax burden, the quality of the three correctly targeted public services, and the housing crisis, would be very significant and real.

The problem is budgetary strategy tends to change from budget to budget and from minister to minister. There is rarely any semblance of a thought-out and consistent strategy and approach over time in Ireland’s fiscal strategy. It tends to jump all over the place from year to year and the net result is that we rarely achieve meaningful change over time. I think the nature of our very diluted form of political democracy is the reason for this.

I would love to see the next five budgets continuing to focus on the very important issues identified in this week’s budget. However, with the reality of ‘new politics’ and the ‘confidence and supply’ arrangement with Fianna Fáil, there is about as much chance of this happening as there is of Dana canvassing for repeal of the 8th amendment.

I am constantly involved in battles with those on the left about the relative importance of economy and society. Out to 2021, Ireland’s GDP is projected to expand at an average rate of 3.5% per annum. On the back of this growth, tax revenues are expected to expand to almost €62bn. This growth in tax revenue will be delivered if the projected growth in the economy materialises.

These tax revenues will be used to fund social protection and vital public services, and if the growth fails to materialise as envisaged, then sufficient resources to fund expenditure will not be generated and services will suffer. Hence, it is essential that fiscal policy should be used to promote growth and generate revenues. The notion that a country can tax its way to prosperity just does not work.

Related Articles

Budget 18 set to focus on childcare, housing and tax cuts

Business leaders call for wider tax net

Steady as we go, but pay gap is toxic - Setting budget expectations

More in this Section

The sobering truths for food and drink startups

How prepared are we for the next crisis?

Breaking Stories

Irish company brings cybersecurity event to Washington, DC

Lloyds cuts nearly 4,000 jobs since being privatised

More From The Irish Examiner