As the Cabinet ponders how to invest the projected €65 billion budget surplus for the country’s long-term needs, Government backbenchers have a much more immediate focus – the political imperative of spending a chunk of the windfall now to give them a fighting chance of holding their seats at the next election.
“It’s all very fine and noble to worry about future generations, but unless we can convince today’s voters we care about improving their lives, we will simply hand Sinn Féin a pot of gold to cement themselves in power for a very long time,” said one Fine Gael backbencher.
Irish political history has shown time and again that voters are more easily swayed by promises of instant giveaways than by prudent policies that promise long-term, sustainable improvements in the lives of all. The most notorious example of the tendency was the Fianna Fáil manifesto of 1977, which resulted in a record Dáil majority for the party and a set of policies that put the country into a recession for a decade, causing massive unemployment and emigration.
Twenty years later, Bertie Ahern won his first term in office with a promise to cut tax rates, rather than the more fiscally responsible commitment of John Bruton’s rainbow coalition to widen the tax bands. The tax cuts fuelled the rise of the Celtic Tiger, but ultimately led to financial crash. Veteran Fine Gael TDs recall ruefully that the sensible policies pursued by Labour’s Ruairi Quinn as minister for finance created the fiscal space for Charlie McCreevy’s tax-cutting splurge.
The fact that booming cities such as San Francisco, Sydney and London have similar, or even worse, housing and homeless problems is no excuse as far as voters here are concerned
In the most recent general election, Paschal Donohoe’s careful management of the economy provided no electoral bonus for Fine Gael. It is now clear that his policies set the country on the path to record levels of growth but they went down like a damp squib with the voters in February 2020.
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The approach adopted by Donohoe ensured that the country had the resources to introduce a range of generous supports during the Covid pandemic and, more recently, the energy bill subsidy to help people cope with inflation triggered by the Russian invasion of Ukraine.
However, the political narrative has been dominated not by the things the Government has done, but by the things it has failed to do, most notably the struggle to solve the housing crisis. The fact that booming cities such as San Francisco, Sydney and London have similar, or even worse, housing and homeless problems is no excuse as far as voters here are concerned.
So what is the Government to do? For a start, it is certainly right to invest a considerable proportion of the surplus revenues in a ring-fenced, long-term fund to meet the pension shortfall expected in the decades ahead. It is not only the sensible thing to do, but there is no conceivable way all the money could be spent in the next few years without doing more harm than good.
That said, there is also a strong argument for spending a chunk of the surplus to give voters some jam today, and not just for cynical political reasons. In truth, people deserve a reward for accepting the restrictions of the pandemic with little complaint and not losing their tempers over the cost-of-living crisis. It is a marked contrast with the chaos caused by the strikes in the UK health service and the violent protests in France over the increase in pension age.
One obvious way of protecting living standards would be to provide a significant increase in pensions and other welfare payments to cushion the most vulnerable from the impact of inflation, and there seems little doubt that the Government will opt to do that.
In the past, governments had to choose between focusing scarce resources on welfare increases or tax reductions, but the Coalition is currently in the happy position that it has the money to do both
There is also an imperative to reward the working population whose taxes have underpinned the spending policies of the State. Ireland has one of the most redistributive tax systems anywhere, with people on middle and high incomes paying Scandinavian levels of tax, while those on low pay get off lightly and welfare payments are reasonably generous.
A significant reduction in the tax burden on middle-income earners is long overdue. One of the long-standing problems with the tax system is that workers start paying the top rate far too quickly. Given the money now washing into the State coffers, a significant widening of the tax bands is warranted to give hard-pressed workers a real increase in their incomes.
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In the past, governments had to choose between focusing scarce resources on welfare increases or tax reductions, but the Coalition is currently in the happy position that it has the money to do both. Leo Varadkar famously said a few years ago that he wanted to reward people who get up early in the morning. Now he has a chance to do just that.
One of the reasons Sinn Féin has made inroads into the middle class electorate is that so many workers feel resentful that as well as being squeezed out of the housing market, they are losing far too much of their income in tax. Fine Gael needs to do something eye-catching to recover ground with this segment of the electorate.