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Leo Varadkar’s promise of tax cuts for middle-income earners looked like the opening salvo in the next election campaign. It caught his political opponents by surprise, and while they were almost unanimous in condemning it we won’t know until after the election whether it was a masterstroke or a blunder.
One of the mistakes politicians make is that they tend to fight the next election on the same ground as the previous one, and are always surprised when the tactic doesn’t work. Given that the outcome of the 2016 election was determined by the issue of “fairness” rather than tax, there was a wide assumption that the next one would be all about improving public services.
The three budgets introduced by the Fine Gael-led Government since have reflected the 2016 outcome, with a strong focus on increased public spending. This had a lot to do with the fact that they were designed in consultation with Fianna Fáil in line with the confidence and supply arrangement between the two parties.
Varadkar has now abandoned that consensus in an effort to set the agenda for the next election campaign. It is a move that will put him at odds with Fianna Fáil, Sinn Féin, the Labour Party and virtually all of the other parties and groups in the Dáil.
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On the face of it returning to the tax-cutting agenda does not appear to make a lot of sense
It is risky on two fronts. Firstly, there is the question of whether Fine Gael is in tune with the mood of the electorate, and, secondly, even if it is how will the party be able to form a government if all other parties are all strongly opposed to such an approach.
Misjudged the mood
On the first question Varadkar must be keenly aware that Fine Gael misjudged the mood of the electorate in 2016, and steadily lost support during the campaign. Voters simply didn’t buy its promise to abolish the universal social charge (USC), partly because they didn’t believe it and also because they concluded better public services were a more pressing concern.
On the face of it returning to the tax-cutting agenda does not appear to make a lot of sense unless there has been a change of public mood since 2016.
In fact there is some evidence that there is now a public appetite for tax cuts based on an Ipsos/MRBI-Irish Times poll carried out immediately after the budget.
When asked if they believed the Government was right to put greater emphasis on public spending than on reducing taxes a majority of voters said no. There was not all that much in it, with 47 per cent saying the Government should have put more emphasis on tax reductions and 42 per cent saying its approach was right.
Yet what was really interesting was that supporters of all parties except Fine Gael were much more strongly in favour of tax cuts than spending increases, with Fianna Fáil and Sinn Féin voters most strongly in favour of prioritising tax.
There was obviously a tendency among Fine Gael voters to back the Government and supporters of other parties to say it was wrong, but there was a message in the response nonetheless.
The class breakdown was also fascinating because the best-off voters were the least inclined to give a priority to tax cuts, while lower middle class and skilled working class voters were the ones most strongly in favour of them.
The problem for the party is that even if it makes significant gains it will still need to find coalition partners to form another government
The message seems to be that it is people on average incomes who feel hardest hit by their tax burden, while the better-off do not feel as aggrieved because they can still enjoy a comfortable lifestyle despite paying a high rate of tax.
‘For the many’
The Fine Gael move to prioritise tax reductions for people on incomes between €35,000 and €50,000 chimes with the message in the poll. “This is for the many, not the few,” said one party source at the weekend ardfheis. “Around 920,000 taxpayers will benefit from increasing the standard rate cut off to €50,000 over five years.”
Of course it is one thing to identify a target constituency and another to convince it to vote for you. Fine Gael will have to persuade people in the heat of the campaign when many other issues will vie for the attention of the voters, not just that the policy is the right one but that it can deliver.
Since Varadkar took over as leader the party has opened up a significant lead over Fianna Fáil in a succession of opinion polls. While the last election showed that a lead can quickly evaporate the consistency of the poll results must give Fine Gael a good chance of gaining seats if it fights a decent campaign.
The problem for the party is that even if it makes significant gains it will still need to find coalition partners to form another government. Its tax-cutting strategy has left it out on its own, and that could make that task difficult.
On the other hand, if it manages to fight the election campaign on ground of its choosing it could make the kind of gains that would put it in an unassailable position to lead the next government.
Varadkar has decided to go for broke on tax, and only time will tell if he has made the right call.