GERARD HOWLIN: Summer economic statement is a scene-setter for October’s budget

For all its posing as prudent, Fine Gael’s fiscal knicker elastic is not nearly as tight as its talk, writes Gerard Howlin.

YESTERDAY’S summer economic statement was ritual, process, tactics, politics and part national policy rolled up together. Despite the media coverage, it won’t be widely read by the public at large. In truth, it is a scene-setter for the budget in October and the real game begins now. Politically that game is the next election. More substantially it’s about policy, which will affect us long after the votes are counted and the posters are taken down.

The budget before an election is different I promise you. The pressures certainly are. This may not, in fact, be a pre-election budget but take it that it is planned as if it were. Policy choice is about framing the message. The fundamental choice for Government and Paschal Donohoe is how to frame policy, and to present themselves politically. It seems, for now, the chosen term is prudence. They will withstand the pressure to splurge, they will invest wisely, and they hope to be allowed to lead on accordingly. Whether the facts of their spending patterns lives up to its billing is another matter.

The framing of policy in terms of much-needed capital investment, supplemented by careful but prudent increases in day-to-day spending, says several things at once. One is that when you and I look around and see prefabs in schools, choking traffic on roads in cities, and a crying need for housing they have a handle on it. There is a plan. It’s funded, and if we stay the course together, we will get there. You use the crisis to frame your credentials to get the job done.

With your money, you only trust people you know are not throwing it around. This is the nexus of the political tactic and the national policy that is emerging as Fine Gael’s bottom line for the election. In their telling, it’s as much about what they say about their political competitors as they are promising us. It’s about trust in them, and what they hope to persuade us is that there should be a deep suspicion, if not outright fear, of the alternative offerings.

On the left, the division is clear. Fine Gael in government, and Fianna Fáil, will argue strenuously that what they promised is not affordable under any circumstances and, in any event, is not sustainable at all. Sinn Féin will be attacked because of its rejection of a rainy day fund which is pencilled in at €500m. By the way, that’s a cheap umbrella in a fiscal storm. What Fine Gael and Fianna Fáil will say too is that Sinn Féin has no credible plan for a downturn. The only way to cope will be additional service cuts, and potentially pay cuts over and above what dire circumstances may require.

It’s not imaginary, because it was the reality of the economic crisis. While people may find it hard to believe, it would all have been worse were it not for Charlie McCreevy’s pension reserve fund.

In parallel, Fine Gael will point fingers at Fianna Fáil as big spenders. Last week’s attack by their accountant TD, Peter Burke, alleged promises that don’t add up, and haven’t been costed. But what Burke was really saying, the detail aside, is that those people are recidivists and unrepentant prodigals. It was an attack on character, and trustworthiness as much as totting up figures. Once the to and fro starts, who couldn’t but be bamboozled. But that’s the point, if you were confused, you might well begin to doubt. Sowing seeds of doubt about others is an essential part of Paschal’s plan. He will be steadfast, while others will be reckless. That is the mantra.

From yesterday through to budget day and beyond, he has a challenge to manage not just economic expectations outside government, but political expectations inside it. It is at the cabinet table, and in the Fine Gael parliamentary party that the ultimate pressures will come.

There are always a few politicians who have no continence in the best of times. There are very few who don’t lose the run of it, before an election. There are constituency projects and sectoral agendas that dig down like JCBs into the public purse. Of course, it is only this once, for this election year. But that raised ceiling then becomes the floor for future expectation. That’s where our previous problems began in 2002 and eventually ended in crisis about 2008.

Donohoe, either directly or through proxies, will set out the choices for budget day in those terms. What he won’t say is that his ultimate challenge is managing his own party’s demands for tax cuts — and the Taoiseach’s particularly. The Fiscal Council, ESRI and Ibec have all cautioned against overheating an expanding economy. Tinkering with things is one thing; real tax cuts are another.

Then there is the fact that Fine Gael in government, a modest property charge aside, failed completely to widen the tax base in a way that would allow a real look at taxes on wages. That’s a pity, but it’s a fact.

Another fact for Donohoe is the known unknown of the Department of Health. We already know what it didn’t tell its own minister about CervicalCheck. As concerning is what we don’t know about its spending profile to date this year and how far off course it is. That is about real money, not just a rounding up.

Perhaps Simon Harris’s sums are the next ones for Peter Burke to tot up on the abacus. It’s more than money. It’s about the credibility of the narrative, and the capacity to point credibly to any plan. On health, there isn’t one.

THE embarrassing fact for Fine Gael is that for all its posing as prudent, its fiscal knicker elastic is not nearly as tight as its talk. Public expenditure is running ahead of profile. We have failed to meet our medium-term objective of delivering on a structural deficit of 0.5% of GDP this year. That is now for next year. We simply do not have a picture of what is going on in health this year.

Credibility, however, is relative. We don’t vote in an ideal world. We choose from what we have on offer. That lowers the bar a little. Fine Gael isn’t in an electoral competition with Sinn Féin. Fianna Fáil is though, and in turn its main rival is always Fine Gael. Sinn Féin is certainly challenging Fianna Fáil, but its own left flank is where it is always focused. As it seeks to move into coalition on its right, it has to talk a lot more left to pull that off. You see, the fiscal numbers will matter in the end, because they are facts. But it’s how you spin them first that matters politically. Left right, left right, quick march.


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