Cowen has Government's fate in his hands

Inside Politics: When Government Ministers take their August summer break, after Monday's Cabinet meeting in Parnell's old house…

Inside Politics: When Government Ministers take their August summer break, after Monday's Cabinet meeting in Parnell's old house at Avondale in Co Wicklow, the Minister with most to think about during the holidays will be Brian Cowen. The fate of the Government in the forthcoming election will hinge on two documents whose contents he will largely dictate, writes Stephen Collins.

The first is the budget for 2007, which will have a crucial role in conditioning the atmosphere going into the campaign. The second is the Fianna Fáil manifesto and particularly the financial inducements, or lack of them, that will shape the terms of the debate during the campaign itself.

Mr Cowen will have to tread carefully in the construction of both documents, not only in terms of content but also of perception. The Economic and Social Research Institute warned during the week that the Government should not ramp up public spending next year but should slow it down in order to prepare for slower economic growth from 2008. It was particularly concerned that a big spending budget, coming on top of the deluge of SSIA money, could lead to a bad hangover in the following few years.

The Opposition pounced on the report with Labour claiming that the Government intended to use the budget as an election war chest. Former party leader and minister for finance, Ruairí Quinn, raised the spectre of the Fianna Fáil-Progressive Democrats Government in its dying days inflicting damage on the economy for short-term electoral gain.

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Mr Cowen has shrugged off this criticism by accusing Labour of making contradictory demands on him for massively increased social spending on the one hand and prudent financial control on the other, without spelling out what they would do if they had the responsibility for preparing the budget.

The Minister certainly has a point, but the weakness of his case is the record of the current Coalition before the last election. At the end of 2001 Charlie McCreevy produced a second giveaway budget in a row to sweeten the voters, when it was clear the economy was in a bit of a downturn. He compounded the problem by claiming during the 2002 election campaign that no spending cuts of any kind were planned for later in the year.

The problem was that when the Coalition was re-elected, it emerged that a memo from the Department of Finance demanding cuts in the projected spending of almost all Government departments had actually be drawn up before the election campaign was even over. The implementation of a much tighter budgetary regime immediately after the election then left the electorate feeling it had been conned. Fianna Fáil slumped in the polls and has yet to make a full recovery.

That is why the perception of what Mr Cowen does in his Budget and election manifesto will be so important, particularly in the light of the ESRI warning. If the impression is created that he is using the taxpayers' money to buy the election, a generous giveaway budget could be counterproductive. The same applies to the manifesto. Promises to spend lots of public money on new projects run the danger of being greeted with cynicism rather than enthusiasm by voters.

Mr Cowen is clearly aware of the pitfalls. Publicly he has stressed that he will adopt a sensible approach to budgetary strategy, while privately he has warned TDs and fellow Ministers that he has no intention of being sucked into making extravagant promises which might lead to claims that he is trying to buy the election.

"My overall budget strategy will be prudent, stability orientated and non-inflationary. It will leave room for manoeuvre in the event of an economic slowdown. It will be strategic and forward looking," the Minister told a Fianna Fáil policy conference in Cork yesterday.

He also gave a few hints about the thrust of the Budget, saying he would concentrate on keeping down taxes on labour, improving public services and investing in capital projects and future pension provision.

The critical thing, as far as the credibility of the budget is concerned, will be the balance between these objectives. There will obviously have to be some eye-catching spending initiatives, not just to impress the public, but to get a bit of enthusiasm going on the Fianna Fáil backbenches.

By all accounts, Mr Cowen was the star turn on Wednesday at the last of four special meetings of the Fianna Fáil parliamentary party, designed to improve communications between backbenchers and Ministers.

As well as delivering a robust defence of the Government's record, laying out in detail the stellar performance of the Irish economy over the past 10 years, he told them it was their job to make sure Fianna Fáil gets the credit for the achievement.

How he walks the line between prudence and profligacy will be a real test of Mr Cowen's political abilities. The experience of his two immediate predecessors as ministers for finance in devising election budgets, provides contradictory lessons.

Mr McCreevy overdid the profligacy and, while Fianna Fáil certainly won the election, the long-term effect has bedevilled the party. In any case the party would almost certainly have returned to power, given the absence of an alternative government. Mr McCreevy's reputation suffered so much he was shunted off to Europe as a sacrificial victim.

By contrast Ruairí Quinn in 1997 erred on the side of prudence and, while that served the national interest, the rainbow government lost power by a narrow margin.

The incoming Fianna Fáil-PD coalition was left with a treasure trove to spend and quickly started dishing the money out in the shape of tax cuts.

If Mr Cowen can deliver the tall order of doing the right thing and still winning the election, he will certainly deserve to be the next leader of Fianna Fáil.