Our golden era in public finances is ending, but what will we have to show for it?

It felt like the week when everything started to go wrong. Corporate tax receipts wobbled — again. The ESRI is forecasting an economic slowdown. The Fiscal Advisory Council, in a new report, cautioned that in a few years, the State could face an annual cost of €5 billion-plus from the climate transition. And the markets for government borrowing worldwide had a dose of nerves, with the era of Ireland being able to raise funds at zero interest rates now well and truly behind us.

The Government briefed backbenchers that next Tuesday’s budget will not be changed by all this, though you can bet your bottom euro that Michael McGrath and Paschal Donohoe will have been using it to try to keep the demands from other Ministers in check.

This year’s budget sums may not change markedly as a result, but the “free lunch” budgets — fuelled by soaring corporation taxes, strong growth and low-cost borrowing — are coming to an end. Tough calls and trade-offs lie ahead as the economy and taxes return to more normal growth rates and the spending pressures long warned about by the fiscal council and others start to appear.

There is no doubt that Covid-19 and the subsequent cost-of-living crisis punched a three-year hole in strategic planning in many areas of government

The council’s report on the tax and spending implications of the climate transition is a striking and thorougly researched piece of work. Its researchers warn that more work is needed, but its initial estimates of annual budget costs of €5 billion-plus are not far off the €6.4 billion full-year cost of the permanent changes planned in next Tuesday’s budget. And the costs of the ageing population will be even greater.

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More revenues will have to be found to pay for this, and as the council notes, if money is not saved now to help pay the bills, and action is not accelerated, the full cost will fall to workers of the future, including the squeezed younger generation now starting out at work and those still in education.

Politically, planning to pay these bills and setting in place longer-term strategies in an age of political populism is far from easy. And there is no doubt that Covid-19 and the subsequent cost-of-living crisis punched a three-year hole in strategic planning in many areas of government, as fire-fighting took over. But the good news is that Ireland emerged from this in much better shape than anticipated, with an unemployment rate of 4 per cent and a sizeable budget surplus.

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There are constraints. The State has high debt levels, but they are manageable once there is a strategy to chip away at the debt burden over the coming years, rather than adding to it. And on the other side of the State balance sheet, there is a lot of cash.

The National Treasury Management Agency has more than €28 billion pushed behind its sofa in cash and liquid assets. The Irish Strategic Investment Fund has €8.7 billion in investments of which €5 billion is in liquid assets. There is a €1.5 billion surplus in the National Training Fund. And of course, budget Ministers Paschal Donohoe and Michael McGrath have put €6 billion over the past few years into a new fund and McGrath is to bring forward plans to stash more away in the years ahead

The message of the past week is that Ireland simply has to grab this opportunity, as we are benefiting from a set of circumstances which are changing

There may be signs of slower economic growth ahead, but the State is not short of resources. As well as the cash stashed away, the tax revenue base has moved in the last seven or eight years to a new level. The growth rates in tax may now be slowing. But we are not heading for a 2008-style collapse. And the conservative management of the public finances in recent years has left the budget in surplus and underpinned Ireland’s reputation on foreign borrowing markets, which is important as investors again start to sniff around looking for where weaknesses lie as interest rates climb and central banks withdraw support.

The message of the past week is that Ireland simply has to grab this opportunity, as we are benefiting from a set of circumstances that are changing. The State has the chance to fund vital investment in housing, water, energy, hospitals, schools and elsewhere and to go a long way to underpin the public finances for some years to come.

The political debate may surround the usual budget fare of how much tax will be cut and who benefits from more spending. But the cash now at Ireland’s disposal gives a chance to hit some big key strategic targets — keep the public finances safe, invest in key infrastructure and development and start to plan to meet the big costs coming down the line with sensible, multiyear plans. And, finally, kill off the boom-to-bust cycle that has bedevilled Ireland’s economy for so many years.

Do we want to pursue this kind of strategy which can benefit future generations? Or do we prefer the sugar rush of spending all the money now and the nonsense debates about abolishing the Universal Social Charge?

Some households are, indeed, suffering, and need to be helped. And the middle ground needs some assistance to ensure the tax burden does not rise and to deliver better services in areas like health and childcare.

Politics really matters in a crisis, but also when opportunity knocks. And we have choices and opportunities now that may soon be closed off if Ireland does not grab them

But if this Government and the next one keep throwing money right, left and centre in universal payments — offering cash to many who don’t need it as well as some who do — then the opportunity Ireland now has will slip away and we will be left with nothing to show for a golden period in the public finances.

We need to invest for key social and economic reasons. If we don’t, our climate goals will disappear out of reach, the next wave of foreign investment will go elsewhere, and we will have missed the chance for the kind of long-term progress in areas like health, education and targeted social supports that can really make a difference. And we need to maintain significant leeway in the public finances because the challenges that lie ahead are unpredictable and dangerous. Ending up having to hike taxes and cut spending in another budget emergency in a few years’ time would be unforgivable.

Politics really matters in a crisis, but also when opportunity knocks. And we have choices and opportunities now that may soon be closed off if Ireland does not grab them.