Brace yourself; we are entering an era of tightly restrained budgets

Economic growth is a mixed blessing for politicians. Without doubt it is preferable to the opposite problem. But it lumbers governments with an avalanche of expectations from interest groups, from their own backbenchers and, ultimately, from the public, which they cannot meet.

Minister for Public Expenditure Paschal Donohoe was frank about this on Wednesday: he will not be able to meet anything like all the requests – many of them worthy.

Governing in recession requires a grim-faced resolution and a thick skin; but politics in a time of plenty is a subtle art of balancing interests and managing expectations. Saying no all the time is easier than saying no some of the time.

Tax cuts

Legally and financially it will be hard for the Government to deviate substantially from the plans published yesterday.

That means a relatively limited amount of money – €350 million for tax cuts, €600 million for new current spending, €250 million for new capital spending – will be available on budget day.

That will not move much, if at all. Aside from the fiscal and legal realities of EU spending rules, Donohoe has to establish his credibility in his first budget.

It is abundantly clear from the dry prose of yesterday’s document that the constant overspending of health budgets remain a huge worry.

The document notes that the health budget increased 6 per cent this year and 4.5 per cent in 2015. Even a 3 per cent increase next year would eat up one third of the available fiscal space.

The department received a €500 million mid-year top-up a few weeks ago, contingent on “an improved governance and accountability framework”, as yesterday’s document states.

Boom-bust

In a larger sense, Ireland and its politics are still adjusting after the roller-coaster boom-bust of the last two decades.

The immediately previous two eras in the public finances were very unusual.

During the boom period, budgets increased substantially every year – 12-14 per cent a year spending growth was typical in the 2002-2007 government under Bertie Ahern and Brian Cowen – while taxes were repeatedly reduced.

That was followed by a painful bust, when the opposite happened. Spending was cut every year while taxes were hiked.

The country has now emerged into a more normal, stable fiscal environment. Strong economic growth has returned even if there is some doubt as to its extent after extraordinary - and everyone agrees, misleading - figures for growth from the CSO this week.

But the reality of Ireland’s high level of debt, the EU rules to which we are legally signed up after a referendum and the external uncertainties of the world mean any government will feel compelled to be as cautious as political reality allows.

We are entering an era of semi-permanent, semi-tight budgets. This is the new fiscal reality.

One of the central questions of Irish politics is whether our political system can adjust to that reality.