Was the biggest budget in the history of the State also the most important?

Was the biggest budget in the history of the State also the most important? Historians will have to sort that one out. It could well turn out to be the most significant, both politically and economically. Having called for the Government “to go large”, I have to commend the direction of travel.

It's possible there will be other financial packages before this crisis is over but it is clear that Pascal Donohoe understands what needs to be done. He has correctly identified the sectors most at risk, the people most obviously suffering. His fiscal efforts to support them should be warmly welcomed and supported.

Criticisms can always be directed at specific measures and questions asked about whether he has done enough. But pragmatists, as opposed to either political or economic ideologues, will recognise this budget for what it is: a statement that much remains uncertain but also the Irish version of “doing whatever it takes”.

The Minister for Finance’s counterpart in the UK is caught between the hard money types calling for a plan for balanced budgets on the one hand and the needs of businesses and the unemployed on the other.

Bus and rail on track for €1bn budget boost

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Budget 2021 main points: Up to €5,000 a week for Covid-hit firms, hospitality VAT rate cut

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Budget 2021: fuel prices rise and high-emission cars hit

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Budget 2021: Recovery, health and businesses at centre of 'unprecedented' €17.75bn package

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The fiscal scolds are also out and about in Ireland: I respectfully suggest they put on their masks and keep their social distance.

Balancing the two constituencies, the needs of the economy and the fiscal vigilantes, is impossible: the British chancellor has tried and is now falling between multiple stools. Policy reversals within days of the original announcement are now characterising the UK fiscal landscape. Trying to please everybody rarely makes for good policy. Donohoe has not fallen into this trap.

Mr Donohoe is unlikely to suffer the indignities of abrupt policy reversals. If he has to do more, I suspect it will be to either build on what he has already announced, perhaps with one or two innovations, rather than embarrassing U-turns.

The only question, to repeat, is whether or not he has done enough. Nobody knows, although I expect many will stake a fake claim to such wisdom over the next day or two. Only time and the progression of the virus (and Brexit) will reveal the truth.

Politically, he leaves his opponents, particularly Sinn Féin, clutching at thin air. They are not allowed to agree with anything he does so opposition can only come via criticisms of budgetary scale. Given the IMF’s recent green light for bigger deficits and, in particular, more capital spending, he might have considered an even bigger capital allocation than the €10bn he announced.

There cannot be much argument with the budget measures themselves. The key social, housing, health, green and education agendas were all addressed.

He pressed all the right policy buttons, including support for hospitality and other hard hit sectors. Support for businesses depending on the pandemic restriction level regime looks sensibly flexible.

There isn’t much, if anything, for the opposition to complain about. All they can cry is “more”– and only a muted shout at that, given the Government’s obvious willingness to do what is enough, to do more if it becomes necessary.

We have to say it every year: higher earners pay as much or more than their counterparts in other socially democratic countries. It’s labelled a very progressive tax system for a reason.

Sinn Féin demands for penal levels of taxation on one group of people is an attempt to stir up class warfare, an echo of the culture wars that are being waged so successfully in one or two other countries.

Sinn Féin’s determination to raise taxes on higher earners whatever the circumstances is obvious from successive manifestos and budget submissions – especially its most recent one. Raising taxes in this budget would have been pure economic vandalism.

Admittedly, there is a stealth tax increase via the (mostly) non-indexation of tax credits and bands but we can forgive the Government that one. A small gift to wage earners via a tweak to the second USC band looks well-judged.

The Opposition’s calls for increases in corporation tax are ridiculous, given that the international environment is going to sort that one out. Our corporation tax take is, probably sooner rather than later, going to go down: there is no need to meet that onrushing train by racing towards it.

A corporation tax hike would well have had perverse results: the Laffer curve in an unexpected place. Messing with corporation tax in the week that the OECD announced its latest proposals and timetable for global reform would have failed basic tests of economic sanity.

Should we worry about the large increases in the national debt that will lead directly from this budget? An emphatic no. At least not for a good while, perhaps never.

There are plenty of good reasons to expect the ECB will continue to play ball. The future must see a resumption of rapid economic growth and some inflation: fiscal policy will have a role to play here. That growth will ease the debt burden.

Every time we see a political or economic commentator moaning that “the debt will have to be paid back” they need to be reminded that governments are emphatically not households. Government debt does not have to be paid back, particularly the kind that sits minding its own business in the vaults of the ECB.

Time will tell how well-judged, economically speaking, Budget 2021 is. My verdict is positive with the caveat that more of the same might be needed. With luck – a vaccine or more anti-virals – we might have the correct policy mix.

But the politics are equally interesting. My hunch is that this budget marks a fundamental fork in the road for Ireland’s political landscape. Those who think that Sinn Féin are on an unstoppable journey to power may have to think again. Good, pragmatic economics can change everything.