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Budget 2019: Varadkar prescribes tight fiscal regime

Inside Politics: Taoiseach rules out expansionist budget in October

Leo Varadkar: More borrowing means a bigger deficit, and higher debt does not make sense. Photograph: Dara Mac Donaill / The Irish Times

If you want a swashbuckling, devil-may-care approach to the budget, go back to 2003 when Champagne Charlie McCreevy was the party organiser.

For this October’s budget, read a conservative, safe and undramatic approach and, to be doubly sure, one that is erring on the side of caution.

Election budget? Tax cuts? Increased spending? Giveaways: one for everybody in the audience?

No, no, no. That is so passe, my friend. Just as going to the gym is the new going out on the lash, the new election budget is all about being Spartan and ascetic.


In his best bedside manner, Dr Varadkar is telling you to take your medicine because it’s good for you.

The beginning of this week is all about the budget. Today Minister for Finance Paschal Donohoe will publish his summer economic statement.

That document will essentially tell us the deficit the Government will aim for in 2019 as well as an outline of the budgetary package - but not, of course, the details.

Ahead of that we have had a spate of commentary from the influencers. As we write in our lead story this morning, the State’s leading economic think tank, the ESRI, has warned there is “little or no scope” for income tax cuts.

The concern of the ESRI is similar to that of just about every other hurler on the ditch that matters - including the Irish Fiscal Advisory Council, the EU Commission and the IMF.

Essentially, it is that tax cuts will essentially add fuel to the fire of an economy that is already showing signs of overheating.

What should we expect?

Senior Ministers are all supping the gruel. If you look at everything Donohoe has said in the run-up to today’s statement, it becomes clear that he won’t be doling out the goodies.

“We have a small open economy that is exposed to a number of risks (including) Brexit, changes in international tax landscapes and rising geopolitical tensions, all of which has a potential to destabilise the economy,” he said in a reply to a recent parliamentary question.

“The Government is cognisant of the risks and recognises the need to plan for the future and manage our resources in a prudent fashion.”

Taoiseach Leo Varadkar chimed with that yesterday when visiting Amazon’s new headquarters in Dublin, where 1,000 new jobs were announced.

He categorically ruled out an expansionist budget in October.

Mr Varadkar said in the current stage of Ireland’s economic cycle “more borrowing means a bigger deficit, and higher debt does not make sense. We don’t want to repeat the mistakes of the past”.

On the face of it the Government has way more room to play with this year. Available resources could be some EUR3.2 billion - five times more than last year.

But then most of that, EUR2.6 billion, is committed to cover public service pay rises, Irish Water and demographic changes in our population. The scope for spending is therefore limited.

Paschal Donohoe will argue today that a full application of the fiscal rules, as well of full use of the fiscal space, would involve the adoption of pro-cyclical policies that would not be appropriate to Ireland’s position in the current cycle.

The emphasis instead will be on a reduction in borrowing and sustainable improvements in employment and living standards.

Some of the revenue from a historically high take of corporation tax will also be set aside to bolster the rainy day fund, which will commence this year.

The new EU royalty

The second half of the week will be dominated by the visit of the president of the European Commission, Jean-Claude Juncker, who will be in Ireland on Thursday and Friday.

He is discussing, surprise, surprise, “Brexit and other issues currently on the European agenda”.

It will be all about the backstop, once an immovable object, now a constantly moving target.

The Government will treat the visit almost like the visit of the queen earlier this decade, with all the stops being pulled. It gives a good illustration of Ireland’s shifting strategic interests. It’s very much Brussels over Balmoral for us these days.

On Thursday, the former Luxembourg premier will meet the Taoiseach, and they will hold a joint press conference.

Mr Juncker will be awarded an honorary doctorate from the National University of Ireland and attend an official dinner in Dublin Castle.

On Friday morning, he will make a courtesy call on President Michael D. Higgins at Aras an Uachtarain. Finally, Mr Juncker will visit Croke Park before departing from Dublin Airport.

All that’s missing is him leading the political delegation welcoming the Irish rugby team back from its Australian tour.