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London will dictate the success of Paschal Donohoe’s first budget

Stephen Collins: Was even modest expansion appropriate given the Brexit backdrop?

Seasoned politicians and journalists were struck by the eerie calm that surrounded Paschal Donohoe’s budget speech. There were no protests outside the gates of Leinster House and no unexpected announcements or verbal fireworks inside the Dáil chamber. As if to emphasise that budget day is now hardly any different from any other Dáil day, the visitor’s bar in Leinster House was virtually empty for the entire evening.

In the fairly recent past there would have been protests of all kinds on the streets around the Oireachtas, unexpected and even jaw-dropping announcements in the budget speech, and a bar heaving with TDs, party supporters, journalists, lobbyists and hangers-on of all kinds.

But this week’s event was none the worse for its relative dullness. The excitement of past budgets was often because the country was in a state of crisis that demanded dramatic action. Back in the 1980s governments fell over budgets as they attempted to wrestle with the consequences of the reckless spending plans endorsed by the electorate in 1977. The fallout from the crash of 2008 coloured the atmosphere around the budgets of the following years, some of which were announced amid real fear that the country was about to go over a cliff edge.

One lesson of past budgets is that those with big surprises can quickly turn to disaster

So it is a sign of normality and even relative political maturity that Budget 2018 is widely regarded as such a routine event, with a range of modest tax and spending increases based on a fairly optimistic forecast for economic growth in the years ahead. Journalists craving some kind of excitement hoped that the Minister would hold one or two surprises up his sleeve; his failure to do so contributed to the general air of let-down on budget day.


Looking at budgets past, however, one lesson is that those with big surprises can quickly turn to disaster. Charlie McCreevy stunned almost everybody in the Dáil back in 2004 when he unveiled his decentralisation plan. That turned out to be a very serious and expensive mistake for which the country is still paying.

Of course the political context for Paschal Donohoe’s budget demanded it be safe. For a start he had to frame his measure within the European Union fiscal rules, which limited his room for manoeuvre. That is no bad thing given the repeated mistakes of the past.

On top of the EU requirement came the political reality that the Minister had to devise a measure that would satisfy the Independent TDs who form part of his Government. He also had to keep Fianna Fáil on board with the confidence-and-supply arrangement that has allowed the Government to function since the last election.

That meant there had to be a compromise between the ambition of Taoiseach Leo Varadkar to take workers out of the top tax bracket and the commitment to Fianna Fáil to reduce the universal social charge. In the event there was a little bit of both in the budget.

On the face of it Donohoe has done a reasonable job of keeping all sorts of competing interests happy with his package of €1.2 billion in tax cuts and spending increases, the bulk which is going on the latter.

For the moment the Brexit storm is still out at sea, but when it hits land the impact could be devastating for Ireland as well as for the UK

The one big worry is whether even a modest expansion package is appropriate given the looming threat of Brexit. For the moment that storm is still out at sea, but when it hits land the impact could be devastating for Ireland as well as for the United Kingdom.

The problem is that even at this stage, well over a year after the Brexit referendum, it is still impossible to judge how bad it is going to be. If the sane forces in the British political system can find a way of winning through, the UK will remain in the EU for a transition period at least, and that could develop into some sort of sensible long-term relationship with the EU.

Given the shambolic state of the Conservative Party, however, there are good grounds to suspect that the UK could crash out of the EU and all its institutions in the most disorderly and damaging fashion.

Such an event would throw all the calculations about future Irish economic growth out the window and might require a rapid return to the kind of belt-tightening budgets that became the norm between 2008 and 2015.

One lesson of those budgets is that, although it is politically feasible to hike taxes of all kinds, it is extremely difficult to seriously cut public spending without prompting a ferocious political backlash. Yet, as the experience of the 1980s showed, pushing up taxes, particularly those on labour, to unsustainable levels can be ruinous in the longer term.

The Government has to prepare as best it can for every possible kind of Brexit, but ultimately the nature and extent of the damage we will have to face will be dictated by decisions taken in London. That is not a comforting thought.