Covid-19 will limit next government’s ability to tackle housing and climate change

Since the early 1990s, coalition arrangements have been underpinned by detailed programmes for government that form a melange of the items that appeared in individual parties' manifestoes. Such agreements limit the potential for policy rows that could destabilise the incoming government.

It is very unusual for new items that had not been aired during the election debates to be included in such programmes and, generally, over the lifetime of a government there is very little room or funding to advance any new initiatives not covered in the programme.

While this mechanism has largely delivered stable coalition governments, unanticipated developments and events can blow the programme off course (as occurred in the economic crash of 2008) or destroy government stability (like the collapse of the Fianna Fáil-Labour coalition in 1994).

This time round, the world has changed between the holding of the election and the formation of the new government, whenever that is finalised.

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Whereas January’s election manifestoes had mostly been framed in terms of there being an extra €10 billion over the coming five years to address the new government’s priorities, the costs of the Covid-19 crisis will probably amount to three times that amount. Thus the programme for the next government will have to start on the back foot in relation to the public finances.

Tackling aftermath

Obviously, the first priority for the incoming government is tackling Covid-19 and its aftermath. So far, there has been little disagreement between parties in the Dáil on the urgent measures to safeguard public health and mitigate immediate economic effects. But there will be clear differences between government and opposition on the policies to return the economy to normal working order, and on which of the temporary measures, like a unitary health service, should not be unwound.

Dealing with the aftermath may take up at least half of the new government’s term. It’s not clear now how long that fallout phase will be, nor the residual economic and social damage that will remain to be addressed. It’s likely there will be little time or resources to deliver on manifesto commitments, or to tackle priority areas like housing, health and climate change.

So it’s best that the programme for government should just cover the foreseeable challenges over the next two years. It is only some time next year, when the recovery has begun, that it will be possible to map out a path for the remaining period of the government to late 2024. At that point next year, there could be a “reset” and, if agreement can be reached, a new programme could be developed for the last three years of government.

Unrealistic commitments that haven’t been delivered on have come back to haunt government parties in subsequent elections. So it would be most unwise for the parties negotiating for government to make commitments today to deliver specific improvements in services and infrastructure by 2025.

Undeliverable promises

The public understands that, in the light of the Covid-19 economic shutdown, many manifesto commitments are currently undeliverable. The new programme for government should reflect this in underpromising for the period to 2025 so that there would be some chance of overdelivering.

It is already clear that this crisis will affect some households worse than others. Where households’ incomes are unaffected – those who are able to continue working on full pay or pensioners – most will actually be saving over the coming months, with no meals out, no pubs, no holidays, no impulse fashion buys. Economically, such households will weather the crisis well. Some may even save on childcare, though others are missing the support of grandparents.

It is those who lose their jobs or otherwise suffer a major loss of income – whether employees or self-employed – who are suffering. Quite rightly, the interim government has targeted the State’s limited resources to protect them. Ensuring that viable businesses survive is more difficult to achieve.

It will be an ongoing challenge to provide well-targeted measures for businesses at risk. Quickly-designed schemes can have loopholes or anomalies, and further tweaking may be needed by the new government.

Most forecasts suggest that the recovery will take some time to mature, with a continuing elevated level of unemployment at the end of the year. This will mean that a priority for government next year will be to stimulate the recovery, despite the fact that revenue will still be below normal. This will likely require substantial further borrowing in 2021.

A longer-term challenge will be to return the public finances to balance when this is over, and build up a cushion against future shocks.