Who’s running the show, Leo, Paschal or Micheál?

Budget 2018 looms, but who is really in charge of the public purse strings?

Taoiseach Leo Varadkar with Paschal Donohoe: the Minister for Finance’s  polite yet firm nature will be tested to its limits this week, when the real talking begins. Photograph: Nick Bradshaw

Taoiseach Leo Varadkar with Paschal Donohoe: the Minister for Finance’s polite yet firm nature will be tested to its limits this week, when the real talking begins. Photograph: Nick Bradshaw

 

On Tuesday, October 10th, Paschal Donohoe, holder of the second and third most powerful political offices in the State, will get to his feet in the Dáil and deliver the first budget of the Leo Varadkar administration.

In charge of the Department of Finance and the Department of Public Expenditure, uniting the department for the first time since the old monolith of Finance was split after the crash, this is Donohoe’s budget.

But it’s also Varadkar’s.

While Enda Kenny left budgets to Michael Noonan, Varadkar is – insiders say – all over this process.

It’s also Micheál Martin’s, Michael McGrath’s and Dara Calleary’s budget, as Fianna Fáil’s assent is need for the budget to pass.

And it’s Finian McGrath’s and Shane Ross’s, and all the other Independents in Government who want something to demonstrate their clout. Everybody wants a piece.

It’s everybody’s budget.

But the buck still stops with Donohoe. By the time he gets to his feet on the afternoon of Tuesday week, he will have spent most of the past few weeks closeted in rooms in his two departments (actually they occupy the same Merrion Street block) hammering out his Government’s spending and taxing plans for the coming year, cutting deals with colleagues, holding out, relenting, making final offers. Like all ministers for finance, he says “no” a lot.

Secrecy

As ever, the process is shrouded in secrecy. Although Varadkar and Donohoe (especially the Taoiseach) have been widely touting their intention to cuts taxes, both have also been warning their colleagues that they will not respond favourably to public promptings in the media.

Special pleadings on newspaper front pages will be counterproductive, they have suggested. So there have been fewer stories making cases for increased spending in health and education and so on.

However, there is some trouble with the Independents, who had a tense meeting with Donohoe in Government Buildings on Thursday afternoon, with some angry they weren’t getting everything they wanted. Accounts differ on how exactly the meeting concluded, but it certainly ended without agreement.

There is also trouble with Fianna Fáil, which is publicly insisting on USC cuts ahead of Varadkar’s raising of the entry point to the higher rate of income tax – the break for middle-income earners he has been promising for weeks, in keeping with his overall political strategy.

Most of the “budget bilaterals”, the supposedly decisive meetings where spending departments debate and agree their settlements for the next year with Donohoe and his officials, have concluded this week.

Minor issues remain everywhere, but as of Thursday, according to one person involved in the process, three departments’ settlements remained yet substantially uncompleted – the departments of Health, Children and Social Protection.

“Just three,” the source emphasised. Well, yes. But health and social protection between them make up for more than half of all Government spending. So there’s a bit of a way to go.

But for all the brinkmanship and amateur dramatics behind the daunting grey facade of the Department of Finance, these remaining arguments are about relatively small sums of money.

A few tens of millions will fix most Ministers’ demands; cumulatively, a couple of hundred million euro is the scope of the arguments that will convulse the Government over the coming days. That’s not an insignificant sum, but it should be understood in the context of the Government’s total budget. Total Government spending this year is more than €58 billion.

Varadkar’s voice

In recent weeks, the Government has been talking up its budget, and also talking it down. There will be tax cuts for middle earners, Varadkar promises. But we will first and foremost balance the books, Donohoe insists.

It is Varadkar’s voice that will hold sway in this budget, insiders say. Michael Noonan largely had control of his own packages and could cut deals in the knowledge that Kenny wasn’t looking over his shoulder.

One Minister said Kenny would usually make his presence felt when the budget was almost done, just to ensure everyone was happy.

Numerous figures who have been in and out of the Department of Finance in recent weeks – and will be for the next week and a half – report that Varadkar’s presence is keenly felt, even if he is nowhere to be seen.

A glaring example of that, according to sources, is that Brian Murphy, the Taoiseach’s chief of staff, is sitting in on some meetings with Donohoe. The line to Varadkar is direct.

One source said their “gut feeling” is that this will be Varadkar’s budget, and expects a policy flourish for the political showman’s first set-piece.

“Certainly the general thrust of where the budget is going to be will have his fingerprints all over it.”

Another source said Noonan was the dealmaker and had the authority to take political liberties in order to bring people onside. “There is much tighter control from Government Buildings this time,” the source said.

“In the last few weeks, it has tightened up. It has been mostly Paschal but the Taoiseach’s imprint and ideology are all over it,” agreed a Minister.

So far, the power dynamics are following the pattern that those inside Government have noticed since Varadkar took over. The Kenny-Noonan style axis – in which the Taoiseach would at times defer to his Minister for Finance – has been replaced by a relationship that clearly has a senior and junior partner.

But the two most senior people in Government are still close, says Finian McGrath, the Independent Minister. “When you’re talking to Paschal, you know you’re talking to Leo. You always get the impression Leo and Paschal are doing it together.”

Donohoe’s polite yet firm nature will be tested to its limits this week, when the real talking begins. “It hasn’t started yet,” said one Fianna Fáil figure. “I can’t see things moving until next week. Sure it’s like poker.”

'Noonan was a very good problem solver. Paschal has the skill to see the problem first and not let it arise'

In his ministerial office, Donohoe has a variety of sci-fi figurines, including Darth Vader, Chewbacca and a Stormtrooper from Star Wars. One person centrally involved in the budgetary process wryly remarked that the “Star Wars memorabilia allows ‘the force to be with us’”.

Donohoe’s private persona is the same as his public image. The unfailingly polite yet firm Paschal Donohoe, who thanks interviewers for their questions before giving away just as much information as he wants, is the same Paschal Donohoe who warns Ministers and their officials that money is tight.

“It is the old cliche,” said one insider. “The iron fist in the velvet glove.”

Finian McGrath says: “If you come up with a mad idea, he’ll tell you.”

“Noonan was a very good problem solver. Paschal has the skill to see the problem first and not let it arise. He will give you a straight answer: he can do it, he can’t do it.”

Another government figure says of Donohoe: “I think he is pretty genuine. He certainly gives the impression that he is engaged. He is very respectful and he gives you time.”

Donohoe has already met Michael McGrath, Dara Calleary and Fianna Fáil advisers. Calleary and Donohoe will sign off on the broad spending priorities of the second of three budgets that Fianna Fáil and Fine Gael have committed to under the “confidence and supply deal”.

Though the pair were contemporaries in Trinity College, each man is fighting for his own party and will not hesitate to take the upper hand where possible. Calleary’s main task is to ensure that his party’s focus on public services – in education, health, housing and elsewhere – is reflected in the budget.

Since last year, Donohoe has annexed the Finance portfolio, but Fianna Fáil still has Calleary focused on spending and Michael McGrath on finance and taxation.

McGrath has also met Donohoe and will do so again but, last year, the final to-ing and fro-ing between Fianna Fáil and Fine Gael was largely done by phone.

Some in Fianna Fáil believe Noonan pulled McGrath too close to him last year in a kind of mentor-protege relationship, yet the nature of this governmental arrangement is that the two finance spokespeople have to be close at budget time.

In some ways, the Cork South Central TD shares some characteristics with his now opposite number, Donohoe.

Tough

“Michael is tough,” says a Fianna Fáil TD. “He comes across as pleasant and charming but he is tough.”

The negotiations with Fianna Fáil are arguably more important than those with Independents, whose demands are often pet projects or constituency issues.

Fianna Fáil will not be given the minute details of the budget. Instead, McGrath and Calleary are likely to be told their policy priorities – detailed in the confidence and supply deal – are covered.

Fianna Fáil’s main concern is that the “no surprises” element of the minority Government deal is adhered to. There must be no repeat of Noonan’s late discovery of an additional €300 million. Tax rises – such as a possible increase in the 9 per cent VAT rate – must be cleared beforehand with Fianna Fáil.

One figure in the Department of Finance is worried Fianna Fáil could push the negotiations to the absolute limit and threaten not to vote for the Budget even after Donohoe had delivered his Dáil speech on October 10th.

When The Irish Times put this fear to one Fianna Fáil member, the reply was one satisfied word: “Good.”

Others in the main Opposition party are more cautious and believe they cannot be seen to play such games.

Exactly how tough the fight between Fianna Fáil and Fine Gael becomes will be largely down to Varadkar and Martin. The confidence and supply deal stipulates that when the respective spokespeople cannot solve disagreements, the problem gets kicked upstairs to the two leaders. Kenny and Martin stepped in when a dispute over the timing of welfare payment increases lasted until budget day itself last year.

It is not in Martin’s interest to make Varadkar’s life easy. The Fianna Fáil leader has shown himself willing to push issues to the very edge – from the formation of the Government, to water charges, to rent caps – before eventually accepting a deal.

Varadkar will not want to be pushed around on his first budget and, as a leadership novice, may feel the need to assert himself in a way that Kenny and Noonan did not. The dynamic between the two leaders remains unpredictable; they are testing each other out.

The budget, at most, will involve minor tweaks to economic and fiscal policy. So what’s all the fuss about?

Irish economic policy has remained remarkably constant despite regular changes of Government in recent decades. Austerity policies have been followed by Governments of all political stripes in difficult times; just as expansionary budgets have been preferred when times were better.

There is nothing likely in Ireland to compare with the great shifts in economic and fiscal policy that would take place in the UK were Jeremy Corbyn’s Labour Party to win the next election there. The budget, at most, will involve minor tweaks to economic and fiscal policy. So what’s all the fuss about?

Budgets retain a powerful political potency in Ireland. People pay attention to them for a little while; even people who habitually tune out of politics. They believe the budget affects them, so they take notice of what the politicians say on “budget day”.

And most governments hope that a budget will give them a political fillip.

But ultimately – while the dividing of the cake can make huge differences in certain sectors and to special interest groups – budget day itself is primarily an exercise in political communication.

The political boost imagined by governments seldom occurs – or not at the time. Polls suggest that the “budget effect”, such as it is, usually comes months later, when measures take effect, rather than when they are announced.

On October 10th, tax and spending changes will be announced. People might be better, or worse off. But typically, not by much, especially in these post-austerity times.

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