Responsible budget approach could still be undone by Brexit

We shouldn’t rule out the prospect of Fianna Fáil returning to power just as the economy really picks up, writes Alison O’Connor.

Responsible budget approach could still be undone by Brexit

THIS will be a modest budget the senior politician advised. There shouldn’t be unreal expectations as we are bound to live within certain fiscal parameters to bring about a balanced budget. A member of the Cabinet you might think, possibly even the minister for finance? No, it was in fact the leader of the opposition Micheal Martin.

It’s still difficult to get used to our new political situation where a confidence and supply arrangement means the Fianna Fáil leader is tempering budget expectations, rather than preparing to criticise the Government for its budgetary offering. He’s urging a responsible approach to Budget 2018. It’s just as well really because given the available resources any other approach could end up looking like two bald men fighting over a comb.

Fianna Fáil and Fine Gael learnt a lot from undergoing the budgetary process for the first time together last year, albeit that there are two new key players on the FG side and Fianna Fáil are still working out how best to tackle Taoiseach Leo Varadkar. This year’s process, so far, has been remarkable for the lack of megaphone politics.

Maybe by Micheál Martin playing it all down he has the double advantage of appearing responsible and targeting the weak spot of new Taoiseach Leo Varadkar, a man to whom the word modest doesn’t seem to aptly fit. He will be hugely eager to make an impression with his first budget. However if the advance publicity is to be believed, he and Finance Minister Paschal Donohoe are putting together a budget that has delayed gratification at it’s heart. They’ve been talking up a three year programme for public finances — in other words a jam tomorrow approach.

We are not in a time of austerity but they will be asking their targeted group of voters, the squeezed middle, to trust that while they will feel very little difference in their pocket on Wednesday morning, this is just the beginning of that budgetary process. Over the next few years, the logic goes they will see real improvements in their pay packets when the so called fiscal space will leave far more wiggle room. This is quite a change in approach compared to what would traditionally have occurred at this stage of the Irish economic cycle — there’s a bit of money around so let’s go mad.

At the Kennedy Summer School last month Mr Donohoe pledged he would not resort to what he called “the failed policies of economic shock and awe”. He faces the twin task there of not just weaning the public off such an approach, but also politicians. He has been steadfast in his message that he wants to adopt a sensible approach, with his first objective being to balance the books, meaning the money coming in will approximately match the amount we spend on public services.

The new Taoiseach had a great go at talking up the tax changes during the summer but seems to have brought himself back down to earth since. He said last month he wants to have “fewer people hitting that higher rate of income tax”.

So Fianna Fáil appear to be taking the calculated risk that if they too talk down the budget they will appear highly responsible but have the added bonus of making Taoiseach Varadkar’s first budgetary outing seem like a bit of a damp squib.

Micheál Martin says FF has deliberately taken a modest approach. “Our tone has been ‘lets not create unreal expectations in advance of this budget’ because we all knew with the fiscal rules as they are, requiring a balanced budget and requiring that we live within certain parameters, this was always going to be a modest budget,” he told Radio One’s Sean O’Rourke.

He took the opportunity to remind commentators who had attacked Fianna Fáil over the confidence and supply arrangement, saying the party would cut and run at the first chance that it got, that the party is still in there — the second budget of this agreement about to be delivered. It is worth stopping for a moment to reflect on that fact. It did seem somehow unimaginable when the agreement was first reached.

Mir Donohoe is all about balancing the books. After all the to-ing and fro-ing, which will continue between now and Tuesday, we will see some concession towards the Fianna Fáil demand for a cut to the USC. However tensions did arise in what FF saw as the FG fait accompli concerning the rise in the threshold at which point people enter the higher rate of tax. This is a political need of the Taoiseach’s and he has to be seen to deliver on it.

It’s looking like the fiscal space for next year is €1.2bn, but we must remember that €900m is spoken for, so that leaves €300m in new tax and spending measures, outside of any new revenue-raising announcements.

There will be revenue-raising measures outside of things like the usual hike in the price of cigarettes and alcohol. The main one apparently being considered is a rise in stamp duty on commercial property.

FIANNA Fáil says it is insisting the budget should set aside up to €100m for higher education to help tackle a funding crisis in the sector and this is expected to be mainly achieved through an increased contribution for the National Training Fund made by employers.

The capital expenditure element of this budget has been well flagged and Mr Varadkar has said projects such as the Dublin Metro and the M20 motorway between Cork and Limerick and motorways to the north and northwest of the country are needed. It is interesting to note that the taoiseach and the minister for finance are both former transport ministers and are both from Dublin. The current Transport Minister Shane Ross, an Independent member of Cabinet, is also from Dublin.

Looking ahead, all going as expected, we shouldn’t rule out the prospect of Fianna Fáil returning to power just as the economy really picks up, with the added boost of being able to say the party behaved with the utmost fiscal responsibility when it was required.

So keep that champagne on ice for now but remember there are no guarantees your patience will be rewarded. No matter how responsible our politicians are this year, and intend to remain, there is always the prospect of something like Brexit that could derail the best-laid plans.

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