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Stephen Collins: Brexit gave Paschal Donohoe the opportunity to bring in a sensible budget

Fine Gael colleagues disappointed over absence of new measures to reduce income tax

The one silver lining from Brexit is that it gave Paschal Donohoe the opportunity to bring in a sensible budget. It provided the Minister for Finance with a cast-iron excuse to resist the chorus of demands for extra spending from every vested interest group in the country, political opponents and, most crucially of all, his own Cabinet colleagues.

Following the strictures of the Fiscal Advisory Council and the Central Bank about the dangers of going back down the road that brought the country to the brink of financial ruin just a decade ago, the Minister needed to put a tight lid on spending. He also had to resist demands from Fine Gael colleagues, including Taoiseach Leo Varadkar, to reduce tax on hard-pressed middle-income earners in what will almost certainly be an election year.

A flavour of what Donohoe had to contend with was provided by the blizzard of press releases on Tuesday from almost every lobby group and NGO in the country deploring one aspect of the budget or another, invariably because it did not provide as much extra money as they felt entitled to.

A typical example was the outrage expressed by Data Protection Commissioner Helen Dixon at the fact that the budget for her agency was increased by “only” €1.6 million, or 11 per cent, when she had lodged a request for an extra €5.9 million. Donohoe had to turn down far more worthy demands for extra spending than that from Government departments and State agencies, particularly those who are under pressure to provide front-line services to the public.


Donohoe has presided over a decidedly more prudent approach for the past three years

As former minister for finance Michael Noonan pointed out some years ago, everybody in Irish public life seems to be in favour of more spending but nobody ever suggests practical ways of raising the extra revenue required to fund all the worthy programmes they espouse, never mind identifying programmes that should be wound up having outlived their usefulness.

Financial crash

It is worth recalling that in the years leading up to the financial crash when substantial tax cuts were the order of the day and Government spending was increasing at an unsustainable rate of 11 per cent a year, virtually nobody raised an objection. In fact the Opposition and the media led an annual chorus of criticism about why spending was not going up even faster.

It is also worth recalling that the voters lapped it up. Former taoiseach Bertie Ahern did not win three general elections in a row by presiding over a tight fisted approach to the State’s finances. In fact, in 2006, he famously overrode the misgivings of his then minister for finance Brian Cowen and delivered an ardfheis speech which included a raft of pledges to cut taxes and spend more. That approach propelled him to his three-in-a-row record of electoral success matched only by Éamon de Valera.

For all the criticism that has been heaped upon Donohoe in recent months by the financial hawks, he has presided over a decidedly more prudent approach for the past three years. Spending has risen by 4 per cent a year and that includes the persistent overruns at the health department. Given the pent-up demand that developed during the years of austerity, particularly in the area of public service pay “restoration”, he could hardly have done more to hold down spending without imperilling the Government’s ability to survive.

From a Fine Gael party political point of view, his failure has been on the tax front. At the start of its life this Government committed itself to a two-to-one ratio for the allocation of extra resources between spending and tax cuts. In fact, almost all of the extra resources have gone into spending increases. In this budget the income-tax take will actually rise because bands have not been widened or allowances increased to take account of inflation.

Equity grounds

One of the features of our tax system is that middle- and high-earners pay high Scandinavian rates of income tax while people on low incomes pay little or nothing. There are strong arguments on equity grounds in favour of this approach but it does mean that the Fine Gael voters, who are largely in the middle- and high-income bracket, have nothing to cheer about yet again.

This is clearly what motivated Varadkar to raise the tax issue in recent weeks and to signal to his electorate that he wants to do something more on the tax front. While he may not have been able to persuade his Minister for Finance to do that in the budget, it will clearly be a priority in the Fine Gael election platform.

Rumours about the prospect of a November election swirled around Leinster House this week based on the fact that the confidence-and-supply arrangement between Fine Gael and Fianna Fáil has now run its course. While Varadkar has publicly named next May as the likely election month, nobody in politics is taking that literally.

The timing will hinge on what happens about Brexit and whether or not there is a no-deal crash out or an extension. If there is a British general election in November it could give Varadkar the excuse he needs to seek his own mandate to deal with whatever happens in the aftermath.