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Election 2020: Are we all socialists now? And six other big economic questions

Smart Money: The seven big economic questions raised by the campaign

As the election enters the final lap, economic policies remain a key focus, particularly those related to spending in areas such as housing. The campaign has raised some important questions – only some of which will be answered by Saturday’s vote. Among these are the implications of a shift to the left and the big scraps about who can be “trusted” with the public finances. Here are the key questions and what they might mean for what comes next.

1. Has Ireland gone socialist?

Sinn Féin's call for the State to take on a more direct role in housing, in particular, but also in areas such as childcare has clearly struck a chord. But it is part of a general leftward shift, in the sense of state involvement at least. Fianna Fáil is also calling for a step up in local authority house construction and parties such as the Greens, Labour and Social Democrats all have variations of the same in their manifestos. So even if Sinn Féin have no role in forming the next government, whoever is in power is likely to try to ramp up local authorities to build more homes – and conceivably also push for a greater State role in other key "quality of life"areas such as childcare.

The State is going to get bigger – and I suspect we will face big questions here, first in trying to make this happen, for example by delivering more State-built homes on a reasonable timescale. Beyond that, how deep will the State go in the years ahead into the provision of not only social but also what is called “affordable” housing – housing for the group of middle income earners who cannot now get on the ladder?

There is populism too in election 2020 – in the sense of being seen to champion the people against an elite, or old guard. So Sinn Féin is specifically targeting the banks, the big multinationals and the roughly 100,000 or so taxpayers – individuals or jointly-assessed couples– who earn over €100,000 a year and in particular the 50,000 or so earning over €140,000. In return it is promising not only to boost spending but also to cut USC, abolish the local property tax, freeze carbon tax and provide a new tax credit for renters.


2. Do voters care about promises to cut taxes?

We may find out a bit more on Saturday. Fine Gael made a big play of their proposal to extend the point at which a single taxpayer enters the higher 40 per cent rate from €35,300 now to €50,000 as a key pitch to middle earners. The party has also promised to eliminate those earning under €20,000 from the USC net. Fianna Fáil proposes a smaller extension in the rate at which taxpayers enter the higher rate and some USC relief. Sinn Féin is promising to eliminate the USC burden for earnings under €30,000, which would benefit the vast bulk of earners, though other measures would more than offset gains for higher income people.

While Sinn Féin is an outlier in terms of proposing more tax on higher earners, some of the other parties are nodding in this direction too

But tax cuts did not seem to catch fire as an election issue – not in public debate anyway. And while Sinn Féin is an outlier in terms of proposing more tax on higher earners, some of the other parties are nodding in this direction too. Labour proposes to phase out the benefit of tax credits for those earning over €100,000 and the Green Party is looking for restrictions on pension tax relief and – like Sinn Féin – also promises a wealth tax, albeit one kicking in at a very high level.

3.Are we taking economic growth and prudent budgeting for granted?

It seems so . All the party projections are based on the latest Department of Finance forecasts, which assume economic growth continuing at or near 3 per cent a year. This would leave €11 billion in what the department called "unallocated resources" over the next five years – fuel for the election manifestos. Two problems. Growth could hit a bump, conceivably as early as next year due to Brexit. And a lot of the money may be needed, based on warnings from the Irish Fiscal Advisory Council, just to stand still and account for inflation and demographic pressures beyond those already counted in.

Fine Gael hoped to get kudos for avoiding election giveaways in Budget 2020

But these scenarios have barely been discussed, bar some stark warnings from Simon Coveney about the potential impact of Brexit – an issue which didn't take hold despite the crucial talks to come. There has been no real debate, for example, of what buffers we need to put aside to guard against future shocks, beyond a few references to the rainy day fund. Fine Gael hoped to get kudos for avoiding election giveaways in Budget 2020. So far the prudence card – and Leo Varadkar's warnings that Fianna Fáil and Sinn Féin would " wreck" the economy – doesn't seem to be carrying huge weight.

One point here is the role of the Department of Finance forecasts. There is a good argument here that before an election the department should provide a range of forecasts to highlight the risks as well as the opportunities. And that there should be an independent body to cost documents and point out the risks and caveats, rather than the parties being just able to say that everything has been “fully costed” by the department, as if that gives it some kind of official blessing.

4. Is big business now a ‘baddie’?

A notable part of the Sinn Féin manifesto comes in its plans to levy more from bigger businesses, including the banks and big multinationals. Some of this was always going to be popular, notably attacking the banks, though previous Department of Finance work warned that obliging them to pay tax now could lower the value of the State shareholding, or their ability to deliver the lowest possible rates to customers.

But the Sinn Féin promise to up employers’ PRSI on salaries over €100,000 to 15.75 per cent, the proposed change to the tax regime for intellectual property and the call to abolish the tax break for foreign executives here are all aimed squarely at the multinational sector. Even Ibec director general Danny McCoy has argued that big business may now have too significant a role in the economy, but Sinn Féin’s plan would represent a big reversal of years of efforts to do almost anything to lure multinationals here and Ibec has warned of the consequences. Given that these companies are big employers and creators of wealth, this clearly would have its risks. But whoever is in government will have to face some tricky challenges in relation to multinationals, notably in taxation but also on the pressure their rapid growth is causing in areas such as housing and infrastructure.

5. Do we not care about the Green agenda?

The need to cut carbon emissions has featured in all the debates and coverage, but argument here never seemed to really take off. Discussion on this in the TV debates has been flat and apart from the Green manifesto, other parties had little new to say. The most recent Irish Times/Ipsos MRBI poll found only 6 per cent of voters felt climate change should be the top priority of the incoming Taoiseach. And this is despite the huge urgency of this agenda and its impact on so many areas of policy.

Everybody is in favour of more cycle lanes – but no-one wants to talk about the awkward trade-offs

The parties have seemed to often skirt around the awkward questions – the carbon tax, the role of farming, the future of the roads programme and the implications for house building and transport. Everybody is in favour of more cycle lanes – but no-one wants to talk about the awkward trade-offs. Still, if the Greens are part of negotiations on a new government, we may well see these issue move centre stage in post-election negotiations. And either way it will be a dominant issue over any new government’s term.

6. Can we really afford to make everyone better off?

Irish elections cannot resist the promise to increase what are called “universal benefits” – in other words benefits payable to everybody in a particular group, regardless of their income. So, for example, both Fianna Fáil and Fine Gael are promising to increase State pensions by €5 a week each year. Along with Labour, they are also promising free GP care for all under 18s over the term of the government, while Sinn Féin promises free GP care for all within that period. The issue is that these universal commitments cost a lot and benefit everybody. And there is an opportunity cost – the loss of something else that could have been done with the money. This could be, for example, cutting waiting lists in key areas of need in the health service, or increasing home help for older people. The parties are promising to do some of these things, too, but experience shows that there is never enough cash to pay for everything.

7. How mixed up are we about pensions?

Very. The ageing population is going to make State pension unaffordable over the long term unless there is reform. This is a fact. So the cost of the various promises here is, to a greater or longer extent, one that will eventually fall due and result in either higher taxation or lower spending somewhere else, when the social insurance fund runs out of cash.

it is denying reality to look at the ageing population and the fact that people are living longer and still argue that we can go on as we did before

It is clearly ridiculous that people have to “sign on” and pretend to look for work for a year or more. But it is denying reality to look at the ageing population and the fact that people are living longer and still argue that we can go on as we did before. A couple of manifestos – Sinn Féin and the Greens – also call for restrictions on pension relief for those with bigger pension pots. While these are portrayed as “ gold-plated” pensions, major cuts in relief could catch significant numbers of people.

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The interesting point to watch will be how far the economic “change” agenda will go on for, once the hard talking starts on the formation of the next government. A lot of manifesto plans tend to get lost in translation into programmes for government, which in turn can be watered down as reality takes hold. But Election 2020 does seem like an important moment – and whoever comes to power next will face big pressure to deal with the quality of life issues which dominated the campaign. How they manage this with the existing economic policy mix will be fascinating to watch.