Budget 2018: betting on growth to pay the bills

Negotiations between the parties needed to vote the budget through have led to a patchwork of measures to try to keep everyone on board

The budget delivered by Minister for Finance Paschal Donohoe was cleverely constructed from a political point of view, raising revenue largely from the business sector and tobacco and using it to increase spending and reduce taxes on income. Photograph: Niall Carson/PA Wire

The budget delivered by Minister for Finance Paschal Donohoe was cleverely constructed from a political point of view, raising revenue largely from the business sector and tobacco and using it to increase spending and reduce taxes on income. Photograph: Niall Carson/PA Wire

 

Taoiseach Leo Varadkar and Minister for Finance Paschal Donohoe were always going to put their own stamp on their first budget. The shape of the spending and tax package clearly reflects some change in priorities, if not a new direction. As seems inevitable in the current political set-up, the negotiations between the various parties needed to vote the budget through have led to a patchwork of measures to try to keep everyone on board, as well as answering the political priorities of the day.

The Government has made a virtue of the necessity of abiding by EU budget rules, pointing out that the books are “broadly balanced” for the first time since the crisis. This is welcome, though with national debt in excess of €200 billion and an uncertain outlook due to Brexit, any other course would have been foolish. Indeed there is little enough leeway in our finances if there is any downturn in growth in the next few years.

The budget was cleverly constructed from a political point of view, raising revenue largely from the business sector and tobacco and using it to increase spending and reduce taxes on income. Inevitably, given the narrow scope for movement, the changes were modest and the cash boost to the public via tax and welfare changes, however welcome, will be limited.

On the spending side of the equation, Donohoe allocated more to health, policing and education, including the creation of significant numbers of new jobs. There is a real imperative here on delivery. More money needs to mean better services in an era when there simply will not be the resources to throw money at problems, and nor should there be.

The Government is correct to target investment in areas such as housing and infrastructure, where spending was cut savagely during the big recession. However, it is essential that this spending is driven by economic and social priorities. We are told that major projects are planned for the years ahead, but comprehensive cost-benefit plans are needed to make the case.

The need to invest more raises another question. How will this be funded in future? And how should we plan in the context of the uncertainty of Brexit and other external threats? While there was a welcome promise to create a new “rainy day” fund, the budget could have done more to present a coherent picture. Instead, we are keeping our fingers crossed that growth will pay some of the bills in the years ahead.

It is a stretch to accuse the Minister of a return to “boom and bust” politics, as some within the Opposition did. The Government, correctly, has prioritised meeting EU budget targets next year and is promising to put more cash aside in future. But it is important to remember that we are still relying on growth of three per cent plus in the next few years and this cannot be guaranteed.

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