The forthcoming Summer Economic Statement paves the way for the government’s final significant political move: the October 1st budget, marking Paschal Donohoe’s ninth and Jack Chambers’s introductory venture in this realm. Notably, it is the final one preceding a general election. What can we decipher about it? Quite a lot, honestly.
The two ministers in charge of the budget revealed through the statement that this year’s iteration is not going to be vastly different from the previous one, albeit slightly scaled-down for now. The definite impact of this difference remains to be seen in the autumn months.
Once more, they will contravene the spending rule put forth by the government in 2021, which has, so far, never actually been adhered to. It’s interesting to note that the Department of Finance still calls it the “expenditure rule,” despite the practice suggesting that the rule is consistently and intentionally violated.
One-time financial measures in the budget are expected to be disbursed later in the current year, potentially close to a pertinent electoral event. This marks the third consecutive year of these “one-time” financial actions, and it wouldn’t be surprising to anticipate the fourth or even the fifth such instance. Sure, Limerick might not manage to repeat their feat, but the Department of Finance probably could.
Looking at Chambers, Donohoe might be thinking that he is going to fit well within their ranks.
Yet, there’s more. Amid the ritualistic one-time financial provisions and the constantly broken rule, it mimics a chapter from Flann O’Brien’s works. It’s making me reconsider my former understanding of the Department of Finance. These peculiarities might be indications of an exceptionally refined sense of humour that was previously unnoticed in the actions of the finance officials. It appears that we continue to learn and evolve, huh?
Indeed, it appears that Jack Chambers is integrating nicely.
Donohoe and the financial bigwigs seem poised to comfortably welcome their new companion. So what lies ahead? The preliminary budget summary presented on Tuesday revealed an €8.3 billion financial plan, which included a significant €6.9 billion rise in expenditure and a €1.4 billion tax manoeuvre. The majority of this tax restructuring will assist with indexation costs and slight alterations to the Universal Social Charge (USC) for those within the lower to middle-income brackets. The likelihood of reverting back to the 9 per cent Value-Added Tax (VAT) for the hospitality industry, however, seems exceedingly low. This would take up a large chunk of the total tax reform; despite the inclination of Fine Gael and Fianna Fáil representatives towards pub owners and hotel operators, their empathy only stretches so far. Fianna Fáil has the perception that Fine Gael are setting them up to shoulder the blame for this decision, which isn’t going to take place. For Fine Gael, there might be a slight modification in inheritance tax proposed as a token gesture to soften the blow, but it’s not wise to count on it.
Despite the headline monetary growth of €6.9 billion, actual spending appears to be more restrained. The simultaneous cost of keeping existing services afloat, along with a public sector pay agreement, abruptly shrinks the financial prospects. Much of the guilt rests upon the pervasive overspending habits of the Department of Health, which perennially overshoots its budget boundaries. Stephen Donnelly has appropriately decided that regardless of these tendencies, his department won’t be abandoned after it has exhausted its budget. Adding this year’s corrective expenditure to the extra funds for next year, some have brightly proposed that this increase in health financial support may finally provide stability. The common term being thrown around is “rebasing”. But when inquired about whether health spending has already been rebased amid the Covid wave, one participant hesitated before optimistically affirming their hopes in these attempts.
Final remark on Donohoe’s budgetary strategy: it might not spell out good news for RTÉ. It seems like a double-edged sword of sorts. Donohoe and Chambers are aiming for a substantial budget handout again while attempting to responsibly manage the windfall. Is this a paradox? In a way, it is, but it’s also the complex balance maintained by Paschal Donohoe.
The politician, who has previously held roles as finance minister and minister for public expenditure, is no stranger to resolving a persistent dilemma: how to satisfy continuous demands for increased expenditure when funds are available, but where it would be dangerously irresponsible to continually expand budgets with potentially transient revenue.
His solution is dual-pronged: firstly, he along with Michael McGrath, conceived and implemented the State savings fund which will accumulate €6 billion this year. The second part involves conducting a precarious annual balancing game aimed at discovering a balance (a classic method of Donohoe), one that scales spending higher than the Fiscal Council and Central Bank economists would prefer, but not as much as the politicians desire.
Politicians claim that economists don’t need to win elections, and as a rejoinder, economists assert that this is precisely why political figures should heed their advice. The true answer resides somewhere in the middle. It is politically unfeasible to restrict spending extremely and set aside the entire budget surplus, especially just prior to an election. Conversely, it would be markedly reckless to expend all of it. Donohoe’s middle path is rooted somewhere in between these two extremes.
An additional note on Donohoe’s handling of the budget process: it might potentially herald ill tidings for RTÉ. Donohoe has successfully shifted the dialogue concerning the broadcasting station’s future funds into a budgetary framework – where it will compete against other political priorities for resources. This manoeuvre significantly lowers the prospect of the broadcasting licence fee being scrapped.