Stephen Collins: Donohoe’s decisions will make or break Government
Fine Gael’s reputation hinges on taking measures needed to get spending under control
Minister for Finance Paschal Donohoe ‘is facing the biggest challenge of his political career’. Photograph: Gareth Chaney/Collins
In the coming months the Minister for Finance, Paschal Donohoe, will have to take a range of critical decisions which will make or break the Government – and possibly the country, if he takes the wrong ones. Caught between the stark warning from the Irish Fiscal Advisory Council that the Government’s medium-term projections for the public finances are “not credible” and the insatiable demands for more spending on all fronts, particularly health, Donohoe is facing the biggest challenge of his political career.
As if that wasn’t bad enough he also has to factor in the consequences of a no-deal Brexit, which almost all economic experts agree would have an immediate and devastating impact on the economy.
It is not just Donohoe who will have to face up to the fact that hard choices will have to be made. The other members of the Government, the entire political class and the general public will also have to get a grip on reality. The current industrial dispute in the health service is just one example of raised expectations which will be hard to cope with.
Part of Fine Gael’s appeal down the decades was that it was generally willing to risk taking difficult decisions when the country needed them
In purely political terms Fine Gael needs to demonstrate the capacity to get a grip on the public finances, even if that means the end of the Government. Its authority has already been weakened by developments such as the cost overrun on the national children’s hospital and its inability to solve the housing crisis.
These are big, intractable issues to which there are no easy solutions but it is on smaller ones such as the allocation of €5 million of State funds to Waterford Airport, which does not have any regular flights, which have really chipped away at its standing.
The reason why the Cabinet agreed to the Waterford proposal was that the Fine Gael-led Government needs to keep Shane Ross and John Halligan on board for its continued survival. There has to be a question at this stage, however, about whether there is any advantage to the country in prolonging the Government’s life in such circumstances.
There is certainly no long-term political advantage for Fine Gael in squandering its reputation by making such demeaning compromises to remain in office, particularly as a general election will inevitably take place over the next 12 months and probably sooner rather than later.
“The general election has probably been put back as a result of our mixed results in the local elections but the longer it is delayed the worse it is going to be,” mused one experienced Fine Gael politician in Leinster House.
Part of Fine Gael’s appeal down the decades was that it was generally willing to risk taking difficult decisions when the country needed them. It was why the voters turned to Enda Kenny in 2011 rather than left-wing populists when confronted with the existential threat posed by the financial crisis. There is a price to be paid for taking unpopular decisions as the hit to Fine Gael, and the even bigger hit to its Labour partners, in the 2016 election showed.
However, in terms of long-term survival a reputation for doing the right thing in the national interest is a key element of the party’s image. Donohoe has an opportunity to recover that reputation by coming up with a prudent budget for 2020 that takes serious account of the fiscal council’s worries and ignores the political pressures to let spending slip once again.
That doesn’t mean the Government should follow slavishly the council’s prescriptions. In the period 2011 to 2016 Michael Noonan ignored some of its advice and it is arguable that the country’s economic growth would not have been as strong if he had followed the more cautious line being advocated by the council.
Income tax cuts
Nonetheless, in the current circumstances there is no arguing with the injunction that spending has to be reined in and income tax cuts taken off the agenda. Taoiseach Leo Varadkar conceded as much last weekend when he accepted that “the watchdog was barking” and was doing its job in the process.
He made the point that spending increases in the range of 4-5 per cent were more appropriate than the 7-8 per cent which has been projected. As if that were not difficult enough, Donohoe will also have the challenge of preparing a separate contingency budget predicated on the prospect of the UK leaving the European Union without a deal at the end of October.
Chief economist at the Department of Finance John McCarthy has warned that the economy is on a knife edge, poised between its current overheating state and the risk of a major Brexit-related downturn. Even by early October it may not be clear which scenario is the most likely to emerge.
One way or another there can be no avoiding the requirement to make difficult choices. The Taoiseach has expressed the view that the Government will be perceived to be “lacking compassion” if it takes the measures needed to get spending under control. That is simply a risk Varadkar and Donohoe will have to take.