The opening of the National Economic Dialogue at Dublin Castle on Monday gives all the budget stakeholders – Government, employers, trade unions and NGOs – an opportunity to set out their stall in advance of the process that will lead to decisions in the autumn about spending priorities in the short, medium and longer-term. Although the recent finding that the economy has entered a technical recession caused a little disquiet, the reality is that this is more related to temporary developments in Ireland’s enormous multinational sector, which can distort the economic picture. In fact, the domestic economy is in good shape, and the background for the public finances has seldom been stronger. Very significant budget surpluses are projected this year and up to 2026.
That fact brings its own pressures, as interest groups seek to secure an outsize piece of a larger pie, while it is much harder for the Government to plead a lack of resources when faced with demands. The proximity of the next general election – which must take place before the spring of 2025 and could very well happen next year – will further heighten the expectation of big spending giveaways to politically powerful constituencies.
The public sector unions, in particular, are preparing to use the opportunity for their members’ benefit. The current pay deal runs out in the autumn and negotiations will start this summer on a replacement. Public servants will expect to be high up in the queue for pre-election giveaways. No government wants a wave of strikes before an election. On top of all this, Fine Gael has made it clear in recent weeks that it is seeking significant tax cuts for middle income earners – a demand from which the party has not resiled despite the obvious annoyance of its coalition partners.
It all adds up to a combination of spending pressures that will more than match the resources at the disposal of the Minister for Finance Michael McGrath and his colleague the Minister for Public Expenditure, Paschal Donohoe. Correctly, McGrath intends to set aside a portion of corporation tax receipts into a special fund for future use. But he will be under huge pressure from inside and outside Government to make the portion saved as small as possible and the portion spent, both on recurring commitments and once-off expenditure, as large as possible.
The two budget ministers must plot a prudent path for the public finances in the face of it all. The coming weeks are crucial as they prepare the Summer Economic Statement which will set the budget’s parameters. They cannot keep everyone who will attend at Dublin Castle next week happy; but they can do the correct thing by the country. Both men insist that the country’s current economic good fortune is in part because of their management in recent years. If they believe that, then they must not falter now.