Election pledges are subject to vagaries of economy

Over the last 40 years, the way elections have been fought in Ireland has evolved. While in earlier elections, in particular in the 1970s and the 1980s, there was either no agreement or limited agreement across the parties on the likely budget available for policy changes, this time around there is broad acceptance of the underlying fiscal constraints.

However, because the budgetary constraints have been presented in different ways, this acceptance was far from clear in the first days of the election campaign. Each election is different, with new problems and challenges facing Irish society and the economy. Because of the serious nature of the recent economic crisis, the future budgetary plans of the different parties have so far been an important battleground. In addition, as in all previous elections since the late 1960s, the question of how the costs and benefits of growth should be shared across Irish society is also a major focus of manifestos.

It was the 1977 election which probably saw the most ambitious plans for increases in expenditure and reductions in taxes of any election. When oil prices spiked in 1979 and the world economy turned sour, a huge budget deficit appeared. Unfortunately, that government delivered on its manifesto promises, in spite of the serious damage this caused to the economy.

Since then governments have been more inclined to recognise that changed economic circumstances require changing policies and that it is better to abandon election promises than to proceed when they are clearly damaging to the economy.

In this election, the main parties have acknowledged their manifestos are based on a particular set of forecasts; there is an acceptance that, in the event of a major economic downturn, wisdom must prevail and election promises will be modified.

In any event, as in all but one of the elections since 1973, the outcome of this election will almost certainly be a coalition. As a result, the programme for the next government will include elements from a number of manifestos. None of the participants in government will get to deliver on all of their election promises, even if the economy continues on track.

Coherence of manifestoes

In an article in this paper at the beginning of this election campaign, the director of the Dutch

Central Planning Bureau

(CPB) explained how election debates in the

Netherlands

on economic policy have evolved. This has not been driven by changes in the law; rather it has occurred in response to the questions posed by the media (on behalf of the electorate) to the parties about the economic coherence of their manifestos.

To provide satisfactory answers to these questions, all major parties now submit their manifestos to the CPB for an economic evaluation prior to an election. The CPB provides an analysis of each manifesto, which clarifies for the electorate the similarities and differences.

In recent elections, we have moved towards the Dutch approach. The Department of Finance forecasts are used by parties to develop manifestos. However, the early days of this campaign saw confusion, with the department and the Irish Fiscal Advisory Council providing alternative presentations of the same numbers based on the same forecasts.

The department presentation begins with the total “budget” available for policy changes in coming years. It then excludes from this “budget” provision for changes in taxes and expenditure that are already provided for in legislation.

In the fiscal advisory council presentation, they subtract from the department forecast of resources the sum needed to keep the current level of educational and health services unchanged in the face of rising numbers of children and elderly. They also make provision for indexation of tax credits and bands so the average tax rate will remain unchanged.

After these adjustments, there is a much more limited budget of €3.2 billion available for what they define as “discretionary” changes. The difference between the two presentations reflects differences on “discretionary” changes.

What the fiscal advisory council approach highlights is that when parties say they will spend a substantial sum on, for example, cutting universal social charge or property tax, much of the cost of these changes may come from the budget to index tax bands and allowances. Thus the effect of the change in USC or property tax on the tax rate may be less than headline numbers suggest, although there may be changes in the distributional effects.

Similarly, when parties promise to spend more on health and education, some of this expenditure may be needed just to keep service levels unchanged.

In future elections, if the fiscal advisory council and the department published the details of the numbers in advance, it would allow parties to present their budgetary proposals in a way which would make clear how much they planned to use in improving service levels and how they intended to change the overall burden of taxation.

Finally, all the manifestos promise increases in expenditure. Increased expenditure does not necessarily mean improved services. What promises of increased expenditure does indicate is parties’ priorities within the range of services provided by the State.