Cliff Taylor: Government will be lucky to pass one Budget - never mind five

There is one central political conundrum lying within the summer statement, the document published this week which outlined the Government’s financial projections for the next five years.

It is that the current minority Government will not have enough additional cash to do half the things it wants to do in the October budget. For this reason, it may well struggle to garner the kind of widespread political backing it needs to get the budget through the Dáil.

The “new politics” – and more pointedly the Government’s minority position – seems to require a search for consensus on all main decisions.

Even if the amount available for new spending and tax cuts on budget day rises a bit from the estimate of €1 billion, it will hardly be a “giveaway” package, particularly when you consider the huge demands on spending budgets.

But here we come to the conundrum – for the Government, for Fianna Fáil and for the rest of the parties.

Room will be limited enough for the 2017 and 2018 budgets, according to the forecasts presented this week. They predict room for manoeuvre of €1 billion for Budget 2017 and €1.2 billion for the following year’s package.

As the Irish Fiscal Advisory Council has pointed out, this does not allow for indexing tax bands and credits, or for at least some of the pressures set to emerge on spending.

We are used to the Government always beating its financial numbers and having a bit more to spend on budget day, but we can’t bank on it continuing.

But here’s the thing. If the Government’s financial targets are met over the next couple of years, scope opens up significantly in the subsequent years, provided economic growth continues.

This is because by 2018 the Government would have reduced annual borrowing to a level seen as sustainable by the European Commission (technically this requires the structural deficit – annual borrowing adjusted for the economic cycle – to fall to 0.5 per cent of gross domestic product). In the world of EU rules, once you meet your targets, you are given more leeway.

Political obsession

On current projections, there would be €3 billion or more extra to spend in each of the three budgets from 2019 to 2021. Now these figures are tentative, as they rely on growth. And you could argue the Irish political obsession with only looking at the extra money available every year is misguided. What about considering how to reform existing spending programmes, costing over €60 billion each, or how the money is raised to finance them?

But the point remains. Potentially, if the Government were to hang on, it would much greater scope after 2018. But if you were Fianna Fáil, for example, might you not try to engineer a situation where you were in government when there would, potentially, be a lot more cash to splash around?

Bad enough for Fianna Fáil propping up a Fine Gael government chugging along and trying to balance the books, but wouldn't it be even worse standing on the sidelines when they were dolling out the goodies? Similar strategic interests will inform the other Opposition parties – if growth continues, everyone will reckon 2018 could be a good time to be in government.

Universal social charge

And so let’s watch closely the political dance required to see whether a minority administration can even get one budget over the line. If things go well, you could see a bit more to spend than €1 billion on budget day, but not a lot.

That might leave €350 million for a tax package focused on the universal social charge and €750 million to meet a myriad of demands for more spending here, there and everywhere. During the election campaign and afterwards there has been no attempt to reel in public expectations of the very limited amount that this will “ buy”.

Next week we will see all the parties lined up looking for a share as we go through the National Economic Dialogue, where the various interest groups will present their case. Someone needs to tell them the scope this October is very limited – unless they want to propose spending cuts or tax hikes elsewhere.

The Government’s programme does not suggest that it sees savings elsewhere as achievable, or that it will plan for much in the way of higher taxes.

There may be the tax on sugary drinks, some higher excises and some measures to limit the gains of USC cuts to higher earners, but the extra sums raised here will not be huge.

It is hard to see any significant cutbacks on the spending side in a world where all the interest groups will be playing to draw on the different parts of the fractured political spectrum for support. And as for the return of water charges or a hike in the local property tax, let’s not even go there. It simply is not going to happen.

The Government will try to dole out what it has, not upset anyone too much, and hang on. That is the new politics.