Business

Varadkar’s economic legacy: a return to full employment and a woeful underinvestment in infrastructure

The outgoing Taoiseach’s departure speech gave an insight into where he feels his real achievements lie

Leo Varadkar with his former minister for finance Paschal Donohoe. Insiders believe the first budget surplus in a decade in 2018 reflected government policy led from the top. Photograph: Collins

Eoin Burke-Kennedy's face
Eoin Burke-Kennedy
Thu Mar 21 2024 - 15:09

Leo Varadkar was only five lines into his resignation speech on Wednesday when he highlighted the country’s shift from “unemployment to full employment, from budget deficit to budget surplus”.

If you were in any doubt about what he sees as his chief triumphs – and how he wants his legacy to be shaped – he was telling you directly. The economic wins come ahead of the political ones.

How much credit a political leader can take for full employment, predicated in large part on mass investment from the US, and for a budget surplus driven by record corporate tax receipts from the same firms, is open to question.

The politically-settled, business-friendly, low-tax environment was nonetheless a key ingredient, and one driven by the administration of the day.

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In the dark days of 2012, the official low point of the crash from Ireland’s perspective, when unemployment had spiralled to 16 per cent and when the State was controlled, financially speaking, by international creditors via a bailout programme, the transition to full employment and running budget surpluses would have seemed unimaginable.

Presiding over the first surplus in a decade in 2018 (a year after he became Taoiseach), as opposed to a budget deficit or a balanced budget, was, according to insiders, an act of government policy led from the top, signalling not only that Ireland’s public finances had recovered from the crash but also that a new fiscal probity had taken root.

Critics will argue that the Government could have done little else given the size of the corporate tax surge, as to do otherwise would have been financially reckless.

Regardless, it laid the groundwork for the positive financial responses to the pandemic and to the recent cost-of-living crisis. Ireland’s navigation of these crises and the resilience exhibited by the economy is best viewed through the lens of having a record 2.71 million people at work.

Taoiseach Leo Varadkar has stood down as leader of Fine Gael, effective today.

Of course the rapid post-crash rebound from 2012 onwards has brought with it problems of a different calibre: capacity constraints. A woeful underinvestment in infrastructure – in schools, hospitals and most obviously housing – has created immeasurable difficulties for the citizens of this State.

Even the US firms that have profited so handsomely from using Ireland as a low-tax launching pad to international markets now highlight housing as a key block on future investment. Almost half (49 per cent) of American Chamber of Commerce Ireland (AmCham) member companies pinpointed housing as the most important challenge to overcome before investing and expanding further in Ireland, a chamber survey, published this week, indicated.

In political terms, the housing debacle, more than anything else, smashed the two-party system that presided since the foundation of the State, forcing Fine Gael and Fianna Fáil into a grand Coalition while placing Sinn Féin on the brink of power, something that Varadkar had the political misfortune to preside over.

His most famous utterance, said as he battled Simon Coveney for the leadership of the party in 2017, namely that he wanted to lead a party for “people who get up early in the morning”, underscored his focus on personal taxation and specifically on efforts to reduce the relatively heavy tax burden on middle-income earners.

The entry point to the higher 40 per cent rate of income tax (for a single worker) has been increased in successive budgets, from €33,800 in 2017 (when Varadkar’s tenure as Taoiseach began) to €42,000 this year. Critics will contend that these higher thresholds merely offset the dreaded fiscal drag, the higher taxes that growing incomes naturally incur, but it’s questionable whether the focus on the squeezed middle would have been there under a different leader.

Varadkar is also known to tout the establishment of the Land Development Agency (LDA), the Government’s main vehicle to produce more affordable housing, and the roll-out of high-speed broadband as key developments during his time. They may need more time to be viewed as successes.

Ultimately his economic legacy is a lot like the two-tiered nature of the Irish economy itself, turbocharged in some places, creaking at the seams in others.

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