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Budget 2023′s three outstanding features, and what they tell us about Irish politics

Timely Government response to mounting domestic problems is to unleash a torrent of money

Bonanza, bazooka, baloney — call it what you will, this was a remarkable budget.

Minister for Finance Paschal Donohoe and Minister for Public Expenditure Michael McGrath unveiled their much-leaked package in the Dáil on Tuesday afternoon. And while it contained no surprises — how could it, when the morning newspapers and news websites contained nearly all the details — Government and Opposition TDs were still somewhat flabbergasted its size.

We used to think that post-Covid budgets would see spending being managed down. The opposite is happening. The vertiginous increases in the cost of living, turbocharged by the war in Ukraine and the consequently spiralling gas prices, have created a crisis for many people struggling with unmanageable bills and fearful of the months to come. So the Government has responded by unleashing a torrent of money on the problem.

Opposition parties exhorted the political correspondents and watching commentators not to succumb to the “spin” from the Government about a giveaway budget. But really, it is hard to describe it any other way. It is neither an endorsement nor a criticism to relate the numbers — using the proceeds of growth, and especially the corporation tax boom, the Government is rolling out an enormous cash giveaway.

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The catch, of course, is that for many people, it will mitigate and not eliminate the pressure of growing bills

It sought, as is customary in our consensus-dominated political system with its broad-based coalitions, to spread the largesse widely. Previously, the need to produce something for everyone in the audience meant the jam was spread too thinly to produce any appreciable political effect. Not so on this occasion; this will be tangible.

The catch, of course, is that for many people, it will mitigate and not eliminate the pressure of growing bills. There is hardship to come for many people. But even around Leinster House as the Budget 2023 debate extended into the evening, you sensed the Oppositions’ hearts weren’t really in their demands for the package to be bigger.

Trying to stand back from it in the hours afterwards, there seem to be three outstanding features of this budget.

The first is the obvious one: it’s an example of the time-honoured tradition of politicians throwing money at a problem. In this case, it’s the application of very significant resources, quickly, to help people with their bills. It is a response not just to the agenda-setting of Sinn Féin — now an inescapable fact of Irish politics — but to the real need that the cost-of-living crisis is creating in people’s lives. TDs of all parties attest that people with problems are coming through the doors of their constituency clinics in greater numbers than ever and, as one TD delicately puts it, they aren’t the sort of people he usually sees.

Budget 2023: What it means for businesses and taxpayers

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And while there may be questions among hawkish economists about fuelling inflation, it was a political necessity. No way could Donohoe and McGrath have got away with a small package while running a giant surplus; not only would that not have been acceptable to the country, they wouldn’t have got it past their colleagues. Understanding this reality, they went for the maximalist approach.

The second thing to note is that the greater part of this budget — the €7 billion of recurring spending increases and tax changes — represents the continuation of the expansion of the State and the associated public spending in line with the trends of recent years. Aside from temporary schemes like wages and business supports, much of the great expansion of public spending during Covid has proved to be permanent. The health vote, for example, is bigger than last year. Indeed, for the first time, it is now bigger than the social protection vote. This is in keeping with the move leftward of the political centre of gravity in recent years, as Sinn Féin has grown in popularity and the Coalition has sought to respond to that phenomenon.

As the State expands, it becomes more expensive to run. At present, the increased cost of running that more expensive state is being met not by tax increases, but by strong growth across the economy generally and bumper tax revenues from a small number of corporate mega-taxpayers.

Donohoe and McGrath conceded on many of the spending requests in recent weeks from their colleagues

But this is not a situation which can be relied upon to endure indefinitely. And it is the realisation of the potentially precarious nature of part of the revenue base that led to the third noteworthy departure in this budget.

Donohoe and McGrath conceded on many of the spending requests in recent weeks from their colleagues (and leaders). Their price was an agreement to divert chunks of the corporation tax receipts to a reserve fund, which will have two purposes: to store up a fund for use during future calamities; and to make sure that the money is not spent on recurring expenditure commitments. Two billion into it this year and a further four next year. With officials estimating that up to half of the €21 billion in expected corporation tax revenues this year is unreliable, this is a serious effort to de-risk the public finances over the medium term.

What will be the political fallout from Budget 2023? All budgets need a little while to settle; there is always a danger of a landmine exploding in the hours and days after — a standout mistake or unanticipated unfairness that is seized upon. They’re usually reversed in the Finance Bill. But it would be quite the achievement to make a political problem of a budget that gives away €11 billion.

It is more likely that the budget generates a short-term glow for the Coalition, which will dissipate when the hardships of winter arrive. The eventual political fortunes of the Government don’t depend on one popular budget — they depend on long-term solutions to the perennial problems in housing, healthcare and public services that adversely affect the lives of so many people.

Successful budgets and budgetary policy are necessary for this, of course. But not sufficient.