Summer statement: Leftward shift from tax cuts towards public spending

Tuesday’s Summer Economic Statement contained plenty of good news, a few warnings and evidence of how the priorities of Irish politics – as understood by the current Government – have shifted.

The good news came in the shape of continued strong economic growth and consequently recovering public finances. The deficit – which at one point soared to 30 per cent of GDP but which was for a long time over 10 per cent – will shrink to less than 1 per cent this year. Very shortly the Government will no longer be borrowing for day-to-day spending.

The debt mountain built up paying off bank debts and funding the current deficit in the years of austerity is shrinking more slowly, but shrinking nonetheless. Soon it will look almost normal by European standards.

The warnings centred around the threat of Brexit (not much they can do about that) and the understandable but real pressures of prosperity – demands for pay restoration in the public sector and so on. These will be hard to manage but they are manageable.

But Tuesday’s statement also demonstrated how much the centre ground of governmental politics has shifted to the left, away from tax cuts and towards increases in public spending.

Extra top-up

The extent to which the priority has shifted from tax cuts to public spending increases was evident from one statistic that Minister for Finance Michael Noonan referred to on Tuesday. He said when the recent extra top-up spending for the Departments of Health and Justice was counted, about 85 per cent of available extra resources this year was going to extra public spending rather than tax cuts.

The Government remains committed to whittling away at USC for lower and middle-income earners over the coming years.

But it seems it is a lot more committed to more spending on public services. Noonan spoke repeatedly of investment in "schools and hospitals" on Tuesday. Largely absent was the emphasis more customary from Fine Gael in recent years about "putting money back into people's pockets".

The tricky bit in all of this is convincing people they are getting better public services – and not just better-paid public servants – in return for the investment.