Gloves off as budget nears but it’s all about how game is played

In a world where figures are not facts, it is down to politics, writes Gerard Howlin.

IT’S under three weeks to budget day, and as of today politics switches from play time to real time. The think-ins are over. The Dáil is back and it is down to the detail of what will happen on 10 October.

The row between Fianna Fáil and Fine Gael on tax is a lot more of two bald men fighting over a comb than Conor McGregor versus Floyd Mayweather. If you want the detail, Fine Gael seemingly favours raising the entry level from the standard rate to the higher rate of tax. Fianna Fáil wants to cut the 5% rate of USC to 4.5%. Both would cost about €200m.

For someone on €40,000 raising the entry point to the higher tax rate of 40 % from €33,800 by €1,000 to €34,800 would leave them €200 better off. Lowering the 5% USC rate would leave that same person €106 better off.

That’s not the full story though.

The Fine Gael option would give just a little more to fewer people, on the basis that the most acute pinch point is where people on a cent more than €33,800 fall into the higher rate. The Fianna Fáil option spreads it out more thinly, among more people, because the 5% rate of USC catches all earners from just over €18,000 to just over €70,000. There is nothing for anyone on less than €33,800 in the Fine Gael plan. You can see the political stand-off right there.

Don’t think this is primarily about economics. The money at stake is paltry. Paschal Donohoe apparently has about €300m to play with on budget day, to include tax cuts and new spending. I could say it’s chicken feed, but that might insult self-respecting fowl. Things would improve if tax-raising measures increased available resources, a concept formerly called fiscal space.

Another option is to spend more than you said you would, and this has happened every year since October 2015 when the then government magicked up an extra €1bn on the Friday night before budget day in the white paper on receipts and expenditure.

A change of EU rules allowed a calculation based on a better than expected end of year out-turn figure, instead of an originally more modest start-of-year figure. And just before an election budget too. It was so exciting that Fine Gael wanted an election there and then. Joan Burton and Labour baulked. Enda Kenny wobbled and waited. The rest is history.

Last year Santa came early again. Ireland passed from the corrective arm of our bailout — which is for countries with a deficit of over 3% — to the preventative arm, for those with a deficit of less. This promotion came with a little more leg room. Ideal for keeping a minority government, dependent on the opposition in power.

The problem this year is that none of those special exigencies apply. Some €300m in play doesn’t make a budget and certainly not one that might be the last one before an election. There is a degree of opaqueness about what’s in play this year.

Another way of putting the same conundrum is that if €300m — plus whatever extra taxes are levied on budget day — is it, it will be a display of probity unknown since the foundation of the State. Then, according to legend, senior civil servants who used the few available phones to make a personal call tore up one of the small supply of postage stamps they bought for the purpose so that the exchequer would not be at a loss. I doubt we are back to that.

One of the benefits enjoyed by the Department of Finance is the very belated establishment of the Oireachtas committee on budgetary oversight, which finally, although only very recently, has been set up with a small staff. It would be to expect too much that it would out-guess the wiles of Upper Merrion St.

Still my suspicion is something is up. I imagine I faintly smell the aroma of cooking inside when I pass the windows of the department. Let’s wait and see.

In a world where figures are not facts, it is down to politics. Fianna Fáil have passed from intensive care to sustained recovery. They will be concerned by last Sunday’s poll giving Fine Gael an 8% lead. Of itself, for now that is meaningless. Only a very unpopular or incompetent government fails to gain ground over the summer. The issue is whether that poll difference is sustained.

The critical issue for Fianna Fáil is that it is effectively setting out its own stall for government. It has turned its face — foolishly in my view — against water charges. It has no proposals for significant tax-raising measures, including essentially widening the tax base. Instinctively it is again company keeping and pandering to public service workers including gardaí and teachers. There are sharp differences on some high-profile detail but little by way of policy that would substantively change direction for the country. It’s not last weekend’s poll that matters, it’s the conversation it’s having with the people, and whether it’s cutting through and making an

impression that matters.

A frontbench reshuffle to mirror Leo’s new lineout would have freshened things up, and maybe brought new energy to the fore. Clearly several people not on the front bench are more capable than some on it. Six years later, there is a palpable tiredness from some.

The budget, therefore, comes down to a specific context. Exactly, how much money does Paschal Donohoe have? We know less about that than for some time past. Talk of opening up the budgetary process has been only that — talk. Oireachtas committees are both politically ineffective and lack the skilled staff to enable them to interrogate not just ministers but, more importantly, their officials about spending plans. Fianna Fáil and Fine Gael hug each other, skirmish over detail but dare not let go. In one sense, the constricted, artificial nature of things ensures that most reasonable economic limits are respected.

There are glimpses of the good old days though. The Independent Alliance wants the bereavement grant restored at the behest of undertakers, for whom it was a subsidy, which like all subsidies simply topped up the price. We are back to exactly that on the Vat cut to the hospitality sector. Paschal could certainly find money there. But to get it he has to put his hand into a wasp’s nest. And Fianna Fáil will promptly blame him.

What is interesting about the budget is not the figures. They are negligible. What is interesting is the choices made in government and what the opposition say about those making them. We have entered into the octave of an election. It is only one or two budgets away. So politicians are making choices now they will have to live with, and be reckoned on, on election day.