Has Fine Gael given away golden opportunity to capitalise on ‘giveaway’ budget?

Minister for Finance Michael Noonan, right, is currently recieving submissions ahead of Budget 2017
Minister for Finance Michael Noonan, right, is currently recieving submissions ahead of Budget 2017

Dan White ponders whether Fine Gael has made a fatal miscalculation by postponing the general election date by at least three months

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20 November 2015 | 0

We’ve had the election budget, with Michael Noonan and Brendan Howlin liberally sprinkling goodies to all and sundry. However, rather than wait another three or four months, during which the day-to-day business of Government will be put on hold, we should be having a general election now.

After more than four years of playing Scrooge, Michael Noonan and Brendan Howlin finally got to play Santa Claus in last month’s budget. In what will be this Government’s last budget before the general election that must be held on or before 8 April 2016, the two Ministers unveiled a €1.5bn package of public spending increases and tax cuts.

Credit where credit is due. On the basis that they would have had to shoulder the blame if they had made a hash of things, Messrs Noonan and Howlin can justifiably claim to be leaving the public finances in much better shape than they found them.

Economy booming

The Government is projecting a deficit of just 1.2% of GDP in 2016, comfortably inside the EU target of 3% and down from 13.4% in 2011 while the debt/GDP ratio has fallen from 106% at the end of 2011 to a forecast 93%, the EU average, next year. Meanwhile the economy is booming once again with the EU Commission now forecasting Irish GDP growth of 6% this year and 4.5% in 2016.

The comparison between Ireland’s economic and fiscal health in late 2015 and five years ago, when we were forced to throw ourselves on the tender mercies of the Troika, is truly remarkable.

But, and unfortunately it could turn out to be a very big but, last month’s budget displayed worrying signs that the Government has taken its eye off the fiscal ball. While Ministers would hardly be human if they didn’t have at least one eye on the looming general election, in their anxiety to court favour with the electorate there are clear indications that the lessons so painfully learnt over the past five years are now being rapidly unlearnt.

Problems persist

Despite the modest trimming of public sector pay in recent years, average public sector wages are still almost 50% higher than those in the private sector. Unfortunately that didn’t stop Public Expenditure Minister Brendan Howlin from promising an “orderly unwinding” of the emergency legislation that was passed to cut public sector pay during the recession. While this might be good politics in the short term, with public sector pay and pensions still costing almost €17bn a year, it could turn out to be very bad for the public finances in the medium term.

Other budget measures that could come back to haunt this government or its successor include Finance Minister Michael Noonan’s promise, while announcing cuts to the lower rates of Universal Social Charge, to abolish the hated USC “over time”.

Call me a cynic, but I can’t help being reminded of then British Prime Minister William Pitt’s assurances, when first introducing income tax in 1793, that it was merely a “temporary” measure needed to finance the war against Revolutionary France.  Two-hundred-and-twenty-two years later William Pitt has long since gone to his eternal reward but income tax is still with us.  With USC raking in over €4bn a year, getting on for an eighth of the total tax take, I suspect that it too will long outlive its creators.

Scattergun approach

Likewise the €5 per month increase in child benefit and the €3 per week increase in pensions smack of good old-fashioned pre-election politics. While the Government no doubt hopes that at least some of the beneficiaries will be suitably grateful come election day, is such a scattergun approach the best use of scarce resources? I for one remain to be convinced.

Other budget goodies also suspiciously resemble pre-election bribes – with their own money – to voters. While a strong medical case can be made for extending free GP care to under-12s, the Government is surely hoping that it won’t do it any harm in the opinion polls. Promises to recruit more teachers and guards also look remarkably like attempts to curry electoral favour.

And I could go on. However, the key point is that everything this Government now does is dictated by raw electoral calculation. That’s not good for the country. We need a Government that governs full-time, not one that tries to fit in a bit of part-time governing between bouts of electioneering.

Labour’s influence

Taoiseach Enda Kenny almost certainly intended to cash in on the feel-good factor created by the budget to call a November general election. If all had gone according to the Fine Gael plan we would now be in the middle of the formal general election campaign and we would have had a new government with a fresh mandate in situ before Christmas.

Unfortunately that didn’t suit the Labour Party playbook. With its support languishing at a mere 8% in the opinion polls, the junior Government party is facing electoral oblivion regardless of when the election takes place. Its only hope is that, by putting off the day of reckoning for as long as possible something, anything, will come up which will somehow stave off Armageddon.

Instead of taking the hard-headed decision and cutting Labour adrift, Taoiseach Enda Kenny postponed the general election for at least three months. While this allows Labour a straw to clutch at, it was almost certainly the wrong decision, both for his own party and the country. As the winter grinds on, stand by for more and more stories about hospital patients waiting forever on trollies and winter vomiting bugs. My guess is that it will be the trollies and bugs rather than the budget goodies electors remember on polling day.

This Government’s work is basically done. It has transformed the public finances and restored Ireland to economic health. Last month’s budget was essentially its manifesto for the next general election. Having had the election budget, the sooner we should have had the general election immediately afterwards.  Enda Kenny may end up regretting listening to the Labour Party sooner rather than later.

 

 

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