Election 2020: Auction politics an added complication for electorate

Foundation for Fine Gael and Fianna Fáil manifestos is €11bn of ‘unallocated resources’

There is more in common with the way Fianna Fáil and Fine Gael allocate funds than there are differences.

There is more in common with the way Fianna Fáil and Fine Gael allocate funds than there are differences.

 

Perhaps the crisis has changed Irish election campaigns – at least a bit. The line- up of promise after promise continues, based on a benign economic scenario which may, or may not, emerge.

Manifestos from the two biggest parties, published on Friday, contained the usual blizzard of major initiatives and minor measures. Such is Irish politics. But Fine Gael and Fianna Fáil also commit to put some money aside in the rainy day fund and aim to keep the budget in surplus – and neither allocated all the additional resources in advance.

The basis for the two manifestos is the €11 billion in “unallocated resources” that the Department of Finance said would be available in the potential five-year term of the next government. There is more in common with the way the two parties allocate the cash than there are differences – but first the health warnings.

Big tax cuts are off the table and the vast bulk of extra resources are planned to go to higher spending

If economic growth collapses – for example due to the United Kingdom not striking a trade deal with the European Union after Brexit – then much of this money would not be available. Also, we know from experience that the cost of dealing with inflation and demographic pressures in areas like health in particular is enormous – it costs a lot just to stand still. The parties both allocate cash for this, though the Irish Fiscal Advisory Council has warned that existing Department of Finance figures do not allow nearly enough for these pressures.

On the flip side – and presumably recognising that prudence is politically popular due to memories of the crash – both parties commit to pay cash into the rainy fund, with Fine Gael promising €500 million a year and Fianna Fáil €750 million. Fine Gael’s figures seem to leave a little more of the €11 billion unspent, so in terms of prudence, at least on paper, there is not a lot between them.

Given that real life will almost certainly end up messier than the projections, it comes down to who you trust to make the right decisions and set the right priorities.

Fine Gael’s Paschal Donohoe plays up the fact that he introduced a tight budget for this year, despite cash being available before an election, while Fianna Fáil focuses on the outgoing Government’s overspending in areas like health and on projects like the children’s hospital. Whether that party’s role in the build up to the economic crisis is a factor with voters is hard to tell and will probably only be evident after the election.

The other thing that has changed in election campaigns is that promises of big tax cuts are off the table and the vast bulk of extra resources are planned to go to higher spending. Both Fine Gael and Fianna Fáil say they will allocate spare resources on budget day roughly four to one in favour of spending over tax, with Fine Gael producing year-by-year breakdowns of how it would add up.

The Fine Gael income-tax package is a bit bigger, centred on a commitment to increase the entry point to the higher rate from €35,300 now to €50,000 and an increase in the Universal Social Charge (USC) exemption threshold from €13,500 to €20,000. Fianna Fáil promises to increase the threshold for entering the higher rate by €3,000 for a single person and cut the USC rate which applies on earnings between about €20,000 and €70,000 from 4.5 per cent to 3.5 per cent.

‘Extra funding’

We have seen during the term of the outgoing Government how pressure on spending each year has meant very little by way of tax reductions. Also, it would require significant moves of credits and the tax bands each year just to ensure people don’t pay a higher proportion in tax as their wages increases. So the tax burden is not going to fall, whoever leads the next administration.

The two big parties are promising more of the same by way of much higher spending in key problem areas

The economics of election 2020 is all about spending. The debate about who can deliver and how much it will cost will rage in the days ahead. On health, Fine Gael’s headline commitment is to allocate €5 billion extra. This comprises about €3.2 billion in what the party terms “extra funding”, with the rest accounted for by allocations to allow for demographic pressures and the impact on health of any new pay agreement. Fianna Fáil promises €2 billion additional in health and also says it has allowed for demographic and pay pressures. Improving the system and implementing the Sláintecare plan is a massive challenge. The same complex job of implementation awaits in housing.

The Green Party and Sinn Féin manifestos will present alternative strategies. The two big parties are promising more of the same by way of much higher spending in key problem areas, only with both claiming they can achieve better outcomes. Voters will look at what differences there are on spending and tax – and there are some. But if they are choosing between the two big parties, the key decision is who they believe will deliver more efficiently, or be able to steer the economy if trouble does hit.

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