OUR budgets are nothing like they used to be. We have much to be thankful for in that. But, like an addict that keeps putting off full sobriety until tomorrow, we remain somewhat in la la land if we think we’re fully paid up members of the fiscal reality club.
How could we be when we “discover” only at the end of last week that corporate tax revenues are set to land €1bn or so higher than expected this year. This annual “found it down the back of the sofa” job is directly at odds with the message that Finance Minister Paschal Donohoe has been trying to drum home about how we need to go cold turkey on our boom and bust cycles.
If boom and bust is our big addiction, then these billions, found serendipitously here and there each year just in time for the budget, are our methadone programme. It’s just that little bit of remaining boom to keep us in the addiction cycle. Needless to say, we’re told this is a one-off and we won’t have it next year, but that just feels as if we’re all going through the motions of a pretence.
OK, it’s not the excess of Charlie McCreevy’s “When I have it I spend it” but rather a “How lucky am I to find this huge wad of cash to fund our ever-increasing spending commitments?”.
It’s a whole other day’s work to address our utter over-reliance on corporation tax in the first place but, to coin a phrase, we are where we are.
The minister’s speech yesterday lasted for an hour and a quarter — surely one of the longest of modern times, and was highly ambitious for a man who had almost no speaking voice the day before. It was so long the details appeared to lose impact somewhere around the hour mark.
The minister concluded by saying the budget was a caring one which secures our future and renews the (political) centre. He said it addressed the risks we face both domestically and on the international front.
To be fair it contained no huge surprises, indeed the vast majority of it had already been leaked which, in itself, is a progression away from the Government’s treating budgets like their own big secret to be revealed to us all under their terms.
It wasn’t a budget that screams “general election” but it’s spendy enough across a number of headings, and there are few losers — apart from the smokers, who are rarely pitied and those in the market for a diesel car.
As things currently stand economically we are lucky to be in as good a shape as we are. But if ever we should be preparing for trouble it is now. The minister did front load his speech with Brexit which he described as being “ever unclear” and said the best preparation for that was responsible for budgetary policy, including the possibility of a no-deal Brexit.
Yesterday’s proceedings had the by-now-familiar full Fine Gael wraparound of social media led by Taoiseach Leo Varadkar. Bizarrely, he tweeted on Monday that the budget would be “fully Brexit proofed”.
Tomorrow's Budget will balance the books, while also putting money back in people's pockets & reducing the cost of living. It'll be fully Brexit-proofed, with increased investment next year & specific measures to respond to the challenges we face in health & housing #Budget19 https://t.co/5lg9u1rucb— Leo Varadkar (@LeoVaradkar) October 8, 2018
In the absence of newly developed clairvoyance skills, this is nonsense. One of the major aspects of Mr Donohoe’s job was to attempt to Brexit-proof our economy as much as possible, but a huge element of that is a shot in the dark given the uncertainties that exist.
In this vein, the minister said our ability to withstand larger economic shocks needs to be stronger. The much-anticipated rainy day fund is to be established and capitalised with €1.5bn from the Ireland Strategic Investment Fund. It will be supplemented with an annual contribution of €500m from the exchequer starting from 2019. Some of our methadone, sorry our “historically high levels of corporation tax”, are to be set aside for the purpose of capitalising it.
Next year he intends to balance the budget for the first time since 2007 with the intention of running surpluses into the future if the economy continues to perform well and to use them to reduce our national debt. In the current climate, that “if” is a big one. Amidst all the facts and figures perhaps the starkest yesterday was the reminder that our public debt level amounts to €42,000 for each and every one of us resident in the State. Imagine getting a monthly statement in the post to remind us of that?
This is one of the highest debt levels in the developed world. There would be much to recommend this fact being one of the first to be revealed on Budget Day, to remind us of our extraordinary levels of indebtedness and to temper expectations. But that sort of thing isn’t a good political look when you want to get back into government the next time around.
In recent times the chairman of the Irish Fiscal Advisory Council Seamus Coffey has been adding his own words of caution saying there is a worrying pattern of “large, unplanned, increases in Government spending” that could put Ireland’s public finances and economy at risk.
His chief target was health which, he said, was consuming more and more resources with no prior assessment and little subsequent accountability. He said that this “cannot continue” but previous experience would appear to show he may as well be whistling in the wind.
Yesterday, Mr Donohoe announced a further increase of €1.05bn in health funding for 2019, bringing that department’s total budget to €17bn. There was also funding of €1bn for mental health services and €150m more for disability services to bring total funding to almost €2bn.
The other “problem” area — housing — got a further €2.3bn to the housing programme for next year to rise to the challenge of providing homes and shelter for “our people”.
So, as always, we are trailing along the road to Damascus hoping to be made pure —but not just yet Lord. We have improved, but still as we progress we keep building extra spending into our budgets and that is dangerous.
Give our addiction to corporation tax receipts, the uncertainties of Brexit, and the lunatic resident in the White House, we should be running that budget surplus already. The psychology and the economics are worrying.
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