Pat Leahy: The budget has two tax cuts – one for each of the big parties

Paschal Donohoe balanced his budget, broadened the tax base, cut taxes for lower earners, provided money for investment and threw money at a range of public services.

He did this in an unprecedentedly fractured political environment, with at least some of his Independent colleagues threatening to resign on the front page of the newspapers and with his main rivals for government peering over his shoulder and holding a veto over the proceedings.

So the new Minister for Finance is entitled to feel happy with his day’s work.

But the political imprint of the Taoiseach is evident in the budget too. Leo Varadkar famously promised Fine Gael that he would sharpen the party’s appeal to the “people who get up early in the morning”. They knew exactly what he meant by that. Tuesday’s budget was an effort to look after many groups; but up near the top of the list was Varadkar’s early risers.

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Donohoe has to make the numbers work, but Varadkar wants the politics to veer in his direction. He’s happy to have an argument about the importance of tax cuts; he thinks that is a conversation he can do well out of.

The budget presented on Tuesday is the first major exercise of political will by Varadkar’s administration and its new generation of politicians that now lead the country. It points to some departures in the way we are governed.

The straitjacket that Irish Ministers for Finance have worn since the crash has been discarded. Donohoe wanted to spend money, so he raised it.

It demonstrates a willingness to tax and spend – but not as we used to know it – to achieve policy and political ends. That rewrites the rules of budget and politics as they have been observed since the crash. Interesting times.

Conservative realism

The budget demonstrates boldness, but also a conservative realism that in an Irish budget everybody has to get something. Varadkar and Donohoe’s left-wing critics in the Dáil delight in portraying them as right-wing maniacs, but of the total budget day package of €1.2 billion, expenditure measures – that is, increasing public spending on housing, health, social welfare, education and so on – accounted for €898 million. Whatever this is, it’s not an homage to Margaret Thatcher.

The boldness is in the revenue-raising measures. Donohoe and his boss realised that the politics of living within the previously declared budgetary limits imposed by the fiscal rules was simply unsustainable. The minority Government could not have agreed a package that cut no taxes, hired few teachers, raised no pensions, and so on.

You can’t break the fiscal rules. But you can get around them a bit. By introducing new taxes, Varadkar and Donohoe could spend what they liked – as long as they raised the cash to pay for it.

Voters will hardly be bowled over by the little giveaways, but Donohoe and Varadkar demonstrated will and capacity

So Donohoe raised new tax revenues of €830 million, clobbering the purchasers of commercial property for €400 million by trebling of stamp duty, and skimming a neat €150 million off the hefty capital allowances used by tech multinationals to lower their tax bills. There is unlikely to be a political outcry on behalf of either sector.

Politicians think constantly about elections – don’t blame them, it is their nature – and they think about budgets as a political tool. An exercise in government, of course, but also a political tool.

The huge last-minute expansion of the budget package - now seemingly a necessary feature of budget day – gave Donohoe ammunition for the two sides of his expenditure plans.

He gave away €335 million in tax cuts, divided between the €177 million in USC cuts that Fianna Fáil publicly and privately insisted on, and €156 million in income tax reductions.

Early morning brigade

The USC cuts are agreed as part of the confidence and supply agreement between the two parties, and as such have the status of holy writ in the catechism of the coalition. But Varadkar wanted income tax cuts too – a clearer signal to the early morning brigade central to his political strategy.

So instead of one tax cut there had to be two – one for each of the big parties.

Everybody said on Tuesday that a fiver a week or a tenner a week won’t make a big difference to anyone. And in pure cash terms, they’re right.

But their value in political terms goes beyond just cash; they are a tangible signal to people that things are getting better, and that the Government has some role in this.

Tax cuts won’t make politicians popular on their own; voters consistently say they are more concerned about public services for one thing. But tax cuts don’t hurt either.

But on the other side of the expenditure plan – the increases in public spending across government – it is harder to see any grand strategy at play.

There was a hefty welfare package of nearly €350 million. Although unemployment numbers are tanking, the welfare bill continues to increase. This reflects two things.

Politically impossible

With a package of tax cutting the welfare budget had to jump or the budget would have been severely regressive – giving more to the better off. That’s politically impossible.

The second is that a comprehensive system of welfare – with universal benefits extending throughout society – is just part of the Irish system. That will not be changed by any politician no matter what he or she thinks of it. Remember the silver revolt on the over-70s medical cards?

Any budget is a political megaphone, an attempt to shout a few things at voters who don’t pay much attention to what you say most of the time. Voters will hardly be bowled over by Tuesday’s little giveaways, but Donohoe and Varadkar demonstrated will and capacity. The missing bit is results; but they have some time for that.

It wasn’t an election budget. But it might keep them going until they can afford one.