There is no doubt that the departure of Paschal Donohoe is an important moment for the Coalition. A permanent fixture as one of the two senior budget ministers since 2016, he has been central to economic and financial policy, and has played an important political role, both behind the scenes and in public. When this Coalition, or its predecessor, hit trouble, it was often Donohoe who was sent out to try to calm public nerves.
His departure leads to a Cabinet reshuffle and a byelection and raises important questions about the future direction of policy. It also leaves the Coalition without one of its central figures – and as eurogroup president one of its best-connected internationally – at an important time. The uncertainties caused by the policies of Donald Trump hang over the economic outlook and here a massive State investment programme is planned.
Donohoe’s tenure in the finance and public expenditure ministries were in some ways defined by three crises – Brexit, Covid-19 and the fallout from Russia’s invasion of Ukraine – and by the process of international corporate tax reform. There is always debate about how much credit ministers are due for the performance of the economy, but through all this turmoil growth has remained strong, employment buoyant and the taxes have rolled in.
The previous government and this one have failed to take full advantage of this bounty in terms of housing, investment and public services. Donohoe must take his share of the blame for this. Public spending surged during the pandemic and continued to rise afterwards, raising questions of sustainability and value for money. The splurge that was budget 2024 was a clear attempt to attract voters before the general election.
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Together with Jack Chambers, the Minister for Public Expenditure, Donohoe was working on a longer-term strategy for the public finances, which will underline the difficult choices ahead. This work will now fall to Simon Harris, whose views on economic policy can be hard to discern.
Donohoe has been criticised by the Fiscal Council and the Central Bank for not doing more to reduce the exchequer’s exposure to corporate tax. He has pointed out that he established two funds to put money away for the future and moved the budget into surplus. Whether these buffers are sufficient if trouble hits may, in time, be tested.
While criticised by economists for spending too much, he faced flak from within his own party for not spending enough. Such is the nature of Irish government and the role of finance minister. With the economy likely to slow and amid geopolitical turbulence, Donohoe’s successor, Harris, will quickly find that the trade-offs he faces offer no easy choices. And that doing the job is unlikely to be a route to popularity, either in Government or with voters.
