The Government can’t buy the next general election – it hasn’t got the money

The Government can’t buy the next general election. It hasn’t got the money. Though, of course, it still can’t help itself trying – just a bit anyway.

At best it might be able to afford to trim income tax next October by something similar to this year and add a bit more to spending. But there are dangers too, as we saw from the volatile market swings during the week, driven particularly by fears of a new euro zone recession.

Should the Government have kept things a bit tighter in the budget?

Yes, it probably should. A genuinely neutral package, which neither added nor took away cash, would have left more room to react if the economy is hit due to international factors.

Will this matter? Quite possibly not. If growth is near forecast levels then the Government should meet its targets with room to spare.

It was the extraordinary surge in economic growth in the first half of this year that allowed the Government to switch from an original plan of €2 billion cuts in the budget to a €1 billion injection. There can be no debate that there is a recovery under way. Where the uncertainty comes is what happens next.

Export markets

The Irish economy is not in a little world of its own. The international market swings are a sign of how fast the key things which affect Ireland can change – from international growth in our export markets to the price at which we borrow money to fund our continuing deficit.

Despite Minister for Finance Michael Noonan confidently laying out forecasts for growth up to 2018 no one really has much of a clue what will happen.

The momentum shown in the first-half figures should carry the economy through to the end of this year, but after what we have come through – and given what is happening internationally – who knows what will happen after that?

Against this backdrop, lowering the level of risk you face is key. I don’t think Ministers Noonan and Howlin (pictured right) can be accused of going mad last Tuesday even if they might have aimed to keep the deficit moving down more quickly. Spending is still, more or less, under control, and demands from spending Ministers were largely fought off by Howlin and his department. The widening of the tax base in recent years remains in place, with a few tweaks.

I suppose we also have to forgive Ministers claiming that the budget can boost growth. As with buying general elections, budgets which can actually have an impact beyond the marginal on the growth rate are a thing of the past.

Strange mix

The budget was a strange mix between old-style populism and these new-era realities. The hike in child benefit and the tax relief on water charges harked back to earlier times. The troika – opponents of universal benefits such as child benefit and supporters of the water charge – won’t like either of these. And they are right.

In overall terms the ESRI analysis later in the week told the story. When you counted in water charges the overall impact on people’s incomes was small, between 0.5 per cent and 1 per cent at most. The message that the days of big cutbacks are over may affect people’s psychology but the extra cash in our pockets won’t go too far.

The budget itself involved a €1 billion spend, but when you subtract the water charges bill and other costs such as university fees the net boost was only a few hundred million.

Compare this with the big giveaway pre-election budgets of the past and you get the picture. In 2001 Charlie McCreevy gave away a whopping €2.7 billion – worth well over €3 billion in today’s money. In the other famous pre-election budget in 2007, Brian Cowen spent an additional €2.2 billion. Those were the days when you really could buy an election.

A bit of stability

Irish political reality still seems to demand another attempt to trim taxes and spend a bit more next October in the hope that this will swing voters around to the Coalition. But surely what people want most of all is a bit of stability.

Someone I bumped into just before the budget last week summed it up. “I just won’t forgive them if they blow it,” he said.

Everyone likes lower taxes and better services, but above all we just want a few years on an even keel.

Vital to this is retaining the confidence of investors who lend us money. Remember the old slogans during the crisis that “Ireland is not Greece” (or Spain or Italy, or whoever was in trouble that day). We have managed to separate ourselves in the minds of the markets from any trouble and this gives us a huge advantage of cheap borrowings.

During the week came the first sign that investors were again assessing the risks posed by lending to peripheral countries. As a small indebted country we can’t ignore this. We are not still quite accepted as a core EU borrower – like, say, Belgium or Finland. But there is a big prize if we can keep heading in that direction, and that means getting borrowing and our debt burden down.

As demands grow on the Government in the year ahead – for higher pay, more spending on services, more tax cuts and so on – this is what Ministers need to remember. The Government can’t buy the next election. So why even try?