Political compromise continues in latest package of cost-of-living measures

If politics is the art of compromise, the package of cost-of-living measures announced by the Government on Tuesday is Cabinet politics in action: everyone got something, but nobody got everything they wanted.

Never mind the three parties, when it comes to fiscal matters there are also broadly three camps – the party leaders, the two hawks – Minister for Finance Michael McGrath and Minister for Public Expenditure Paschal Donohoe – and the spenders, which includes pretty much everyone else.

The leaders tend by inclination towards the spenders but, unlike the individual spender Ministers, they have responsibility to maintain a general fiscal policy that is sustainable; in other words they usually side with the two hawks because they have to worry about the entire Government, not just their departments. The spenders are spenders and the hawks are hawks; so the leaders’ position is usually decisive.

This complex dynamic delivered a political compromise on Tuesday: an extra €1.3 billion in spending to support those hardest pressed by cost-of-living increases, with most spending going on a series of one-off social welfare payments. Importantly, this included a €100 child benefit payment, which is, of course, not means tested. In other words everyone who has children benefits. Fine Gael loves a bit of middle class welfare if it can get away with it.

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The hospitality sector reaped the rewards of an intensive lobbying campaign and postponed again the end of the special VAT reduction that was in place between 2011 and 2018 and revived as a Covid measure in 2020. Maybe it was the hyperbolic claims of Armageddon in the industry if the VAT rate rose by 4.5 per cent; more likely it was the intensive lobbying campaign directed at Fianna Fáil backbenchers in particular, which in turn put pressure on McGrath.

Whatever happened Government plans to axe the special treatment for hospitality foundered in recent days and the relief was extended to August. No doubt we’ll go through the same process then, very possible with the same outcome. The total cost of extending the relief will be about €250 million; the total cost so far has been €900 million. That’s worth the lobbying for sure.

But if Donohoe and McGrath conceded on VAT and made a lot of money available for welfare supports, they got their way on other things. The welfare supports are all once-off, and so won’t affect the budget process later in the year. The €200 energy supports were not, contrary to general expectation until recently, extended. And the reductions in excise on fuel will be phased out, meaning staggered increases in the prices of petrol and diesel at the pumps.

It’s on this front that the Government is most likely to ship political criticism: you can imagine what rural Independents and Sinn Féin TDs will toss across the Dáil chamber at the Greens, who insisted on the measure. They will be accused of wanting higher fossil fuel prices. That’s entirely correct. Debate on this issue was the most contentious part of agreeing the package in recent days.

More broadly the announcement on Tuesday continues the existing policy of the Coalition – to use the fruits of Ireland’s extraordinarily healthy economy and resulting billions of euro of spare cash to ease the cost-of-living pressures. There is no guarantee this can continue. But there is no sign it will end either. It depends on the continuation of bumper tax receipts and it depends on voters being reasonably appreciative of the Government’s largesse. So far it has worked.