The Government would not survive a Trump-Brexit recession

Next Friday, Donald Trump becomes president of the United States and on Tuesday Theresa May will make her long-awaited speech setting out her priorities for the negotiations that will follow her triggering of article 50 in March.

Sometimes it seems like this is the politics we see on television, rather than the politics that affects us.

But both events are of immense importance for this country, and will have a direct bearing on the future of the minority Government, principally because of their economic effects.

Economic trends and events are the tectonic plates on which politics shifts; Brexit and Trump are sure to have significant economic effects. It is difficult to envisage that these effects will be anything other than negative for us.

Pat Leahy: Predictable response to a predictable hospital crisis

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Pat Leahy: Irish populists are right about one thing

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Pat Leahy: Brexit is looking worse and worse for Ireland

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Pat Leahy: Government limps a little closer to the inevitable

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First, the Donald.

This week’s watch-through-your-fingers press conference by the president-elect signalled a fact that many Washington observers have been coming to terms with in recent months: that President Trump will behave a lot like candidate Trump.

The US system of government will curb his executive power in some respects. But not in others. He will have great freedom of action in foreign affairs, and in trade policy, for just two examples.

Trump's views on trade have been quite consistent for 30 years, as Tom Wright, a fellow of the Brookings Institution in Washington, has pointed out.

He believes that the US has been fleeced by its trade partners and he wants to reset the terms of America’s global trade arrangements.

Signature policy

Indeed, if there was one signature policy of his campaign, it was that he would “make better deals” on trade. That view has not changed much, or at all, to judge by his pronouncements since the election.

A lurch away from free trade – which is exactly what he has promised – would hurt the global economy, and almost certainly the US economy too in the medium term.

A slowdown in international trade would have the greatest impact on the most globalised countries, and Ireland is one of the most globalised countries in the world.

Whatever you think about the wider effects of globalisation, it’s difficult to conclude anything but that Ireland has been a conspicuous winner from the opening of global trade in the last three decades.

That’s certainly what the rest of the world thinks. And if there is a slowdown in global trade, there will almost certainly be a slowdown in corporation tax receipts flowing into the Irish exchequer.

As has been evident from the Apple case, big global companies pull all sorts of wheezes to avoid paying the sort of tax rates that you or I pay.

But even a small proportion of multinational profits amounts to vast sums for a country the size of Ireland.

An Irish Times survey last year found that the top 10 companies in Ireland (mostly US-owned multinationals) paid two-thirds of the €7 billion collected in corporation tax the previous year.

Like it or not, our public finances depend on these boyos to a significant extent.

Now enter Theresa, stage right.

Many of the same dynamics are present in the questions of how Brexit will affect Ireland economically, and therefore politically.

For big corporates, investment decisions will be stalled at least, while smaller exporters are already being monstered by the decline of sterling.

The Government is pushing the idea – Enda Kenny was in Madrid doing it on Thursday – that the North will have to be granted some sort of special status in the post-Brexit arrangements.

Ms May’s speech may give some sort of indication of how seriously the British are invested in this idea. But even the best case scenario isn’t great, and the worst involves a significant handicap to trade with our largest trading partner.

This Government is like all other governments, except more so, in its willingness to spend money to overcome political problems.

The budget was supersized in the days before its presentation to account for the spending demands around the Cabinet table.

Money was bunged at health mid-year just like it has been under every other Minister for Health. Gardaí were allowed to blow up public pay policy to avert an unprecedented and probably illegal strike.

Lists of demands

When Michael Noonan went in to conclude the negotiations with the Independent TDs before the formation of the Government last year he inspected their lists of demands and told them that he was the Minister for Finance and he would make sure they got the things they wanted. They did, and they will.

Discretionary spending is the principal adhesive keeping the Government together.

Of course, the money involved is not material. John Halligan's second catheterisation laboratory for Waterford hospital (announced yesterday) will cost a piddling sum compared to the overall health budget. And how much could reopening Stepaside Garda station cost anyway? But that is not the point.

The point is that the Government follows the customary politicians’ approach to problem solving – throwing money at it. The availability of money is contingent on external factors outside its control.

If the Trump-Brexit economic slowdown hits Ireland badly, it is difficult to see how the coalition could survive for very long.

Could it withstand a siege of public sector strikes? Could if raise taxes if it had to? Could it cut spending? The answer is probably not.