Pat Leahy: Varadkar must persuade voters he can deliver on tax cuts
Tax cuts within scope of prudent budgeting will please ‘squeezed middle’
Taoiseach Leo Varadkar: Fine Gael will have to acknowledge that by spending money cutting taxes, it will have less to spend elsewhere. Photograph: Nick Bradshaw
Leo Varadkar’s rabbit-out-of-a-hat promise of tax cuts for the so-called squeezed middle at last weekend’s Fine Gael Ardfheis was one of the most dramatic political moves of the year and a clear declaration of intent in advance of the next general election campaign – whenever Brexit permits it.
It has created a new dividing line in Irish politics that Fine Gael strategists fancy will reorient the contours of the election debate in their favour, with themselves on one side and everyone else on the other. I think there is a fair chance they may be right – but no more than a fair chance. For the tax-cutting message to bear electoral fruit, it will have to be explained, defended and communicated in a way that is credible to people.
Fine Gael will also have to acknowledge that by spending money cutting taxes, it will have less to spend elsewhere – on public services, on public servants, on welfare, on building things. In other words, Varadkar will have to justify his choices.
There is a lot of misremembering of recent political history about. This especially applies to the political success of Bertie Ahern, who many people seem to think ran his three victorious election campaigns on a tax-cutting platform. But that’s wrong. Ahern was always more interested in increasing public spending than he was in tax cuts. “He couldn’t care less about tax,” says one person who worked for him.
Ahern promised to cut tax rates in 1997, it is true, but his Rainbow opponents (the Fine Gael-Labour-Democratic Left) alternative were also promising substantial tax cuts. At least part of the reason for Ahern’s success was that he explained and defended his proposed cuts to income tax rates, rather than the alternative, slightly more complex proposal by the Rainbow based around changes to the tax bands – which would also have reduced the amount of tax people paid. In other words, everyone was promising tax cuts but Ahern’s were clearer and more credible.
There were no tax cuts in the 2002 Fianna Fáil manifesto for the archetypal boomtime, showtime election. Let me write that again: THERE WERE NO TAX CUTS IN THE 2002 FIANNA FAIL MANIFESTO. Ahern’s second government did go on to cut taxes in a variety of guises, first at the behest of the PDs, and latterly because Fianna Fáil sought to buy its way back into the public’s affections. But the election itself was not fought on tax.
In 2007, the third election in a row that the party won, Fianna Fáil did include tax cuts – on Ahern’s insistence, over the head of ministers and advisers – as part of its offering to the public. In this, Ahern was following the lead of the opposition, which had been first into the field with pledges to cut the top and standard rates of income tax (first in was the Labour Party, actually). Fianna Fáil’s tax cutting promises were less munificent and optimistic than its rivals in a campaign that was more about economic credibility than lavish plans for the future. “We will promise less and deliver more,” Brian Cowen used to say. Ah, innocent days.
Universal social charge
There were, of course, no tax cuts in the 2011 election, fought in the worst depths of the economic crash. Then, in 2016, Fine Gael promised to abolish the “hated” universal social charge – but lost 26 seats. In other words, the party promised a huge tax cut but it completely failed to deliver as an election tactic. There might be a message in there somewhere, no?
All of which is a rather long-winded way of saying it has been 21 years since tax cuts have been central to and decisive in a general election campaign. This is not, I think, because Irish voters are innately opposed to the idea – far from it. It is because they don’t necessarily trust that politicians will deliver them.
There were, of course, no tax cuts in the 2011 election, fought in the worst depths of the economic crash
The challenge for Varadkar and for Fine Gael, then, is not to convince people of the merits of reducing their taxes – it is to persuade them that their plans are realistic, prudent and credible. They don’t have to sell the idea – they have to sell their own ability to deliver it. That, frankly, is a more difficult task.
In fiscal terms, Varadkar’s proposed tax cut is comfortably within the scope of prudent budgeting, assuming (always assuming) strong economic growth continues, and assuming that he is willing to acknowledge the trade-offs elsewhere. Go through the dense thicket of numbers in the extended budget documentation and you’ll see that of the projected available resources for budgetary expansion in 2020, Varadkar’s tax wheeze would still mean a ratio of spending increases to tax cuts of more than 2:1. I am afraid that if that makes you a right-wing maniac, then the Labour Party and Fianna Fáil are also right-wing maniacs, as is everyone who signed up to the current administration’s programme for government.
All parties have identified the “squeezed middle” as a key demographic. These are those who are “just about managing” – the “jams”, they were dubbed in the last UK election – who know that the economy is improving but are failing to see any significant impact in their own lives. Employment may be at record highs, but in the public sector there is still anger at what was taken away during the economic crisis and in the private sector job insecurity and low pay is rife. Younger “jams” are crucified by high rents, and home ownership seems completely out of reach. Those in their 30s and 40s are struggling with the costs of childcare and mortgages. The cost of living will be an enormous issue in the election because it is a huge issue for many people.
Varadkar has made the first pitch to them. Others will surely follow.