Friday 28 July 2017

Varadkar plans to spend big but talk of tax cuts is downplayed

Exclusive: boost for roads, rail, hospitals and housing but scope for 'squeezed middle' tax cut is downplayed

Taoiseach Leo Varadkar Photo: Gerry Mooney
Taoiseach Leo Varadkar Photo: Gerry Mooney
Jody Corcoran

Jody Corcoran

The Government will this week announce a "significant ramping up" of spending on Ireland's infrastructure to allow it to bring forward long-delayed projects like Dublin Metro, the Sunday Independent can reveal.

However, the scope for tax cuts in the Budget this October is understood to have been overstated and is now expected to be closer to €250m, an outcome which may disappoint the "squeezed middle" who were led to anticipate substantially more money in their pocket.

But yesterday a Cabinet source said: "There are still many moving parts. For example, we could still raise taxes on cigarettes and use some of that to make the income tax package better." He added: "There will be more money in people's pockets, but also, modern infrastructure all around them." The Government intends to stick to a 2:1 expenditure versus tax relief ratio agreed with Fianna Fail.

The new capital spending plan, which is also expected to see projects like the M20 between Cork and Limerick, motorway access to the West and North-West, and the A5 from Letterkenny to Derry brought forward, is now expected to form the centrepiece of the Summer Economic Statement to be announced by Finance Minister Paschal Donohoe.

Mr Donohoe is to bring the plan, which is said to also include "major investment" in healthcare, housing and educational institutions, to Cabinet on Tuesday for approval.

In the Sunday Independent today, the distinguished economist Colm McCarthy, a known opponent of the Dublin Metro plan, writes: "It would be a tragedy if resources, likely to be scarce for many years to come, were squandered on politically motivated white elephant schemes."

Cabinet sources said that the additional expenditure, above what is already planned through the new 10-year National Development Plan, will not take effect until 2019 onwards. This now leaves the Government open to an accusation that the additional spending to be announced on Wednesday will amount to a series of promises intended to win Fine Gael votes ahead of a General Election likely to take place next year.

But a Government source said: "The increased spending will be incremental each year. There is concern that ramping up spending too quickly will cause construction inflation and we don't want to end up paying more for the same. We want more for more."

There is, however, a growing expectation that an election will be held before the Budget next year, possibly as soon as spring or early summer.

Yesterday, Fianna Fail targeted Mr Varadkar's "new economic policies", dubbing them "Leonomics" and stating that a number of his policy positions had been found to have "no substance".

Public Accounts Committee chairman Sean Fleming said: "It's evident that the Taoiseach is more interested in issuing sound bites rather than actually outlining economic policies of substance."

Also in the Sunday Independent today, Fianna Fail's Social Protection spokesman Willie O'Dea says that if government was only about "photo-ops and designer socks" then anyone with a "personal trainer and spin doctor could do it", a jibe at Mr Varadkar's reception of the Canadian Prime Minister Justin Trudeau last week. However, Mr O'Dea adds that no matter how Mr Varadkar "juggles the figures" there is "no way I can back any plan that denies increases for carers, people with disabilities or pensioners".

He says increases over recent years have not kept pace with the increasing cost of living "and that means they have, in real terms, been losing out".

The Sunday Independent understands that the Government intends to index increases in the State pension to the cost of living as an automatic minimum increase every year.

Cabinet sources also told of how Mr Varadkar had adopted a "markedly different style" to his predecessor Enda Kenny.

One source said: "There were two meetings this week to allow for a two-hour discussion on the Summer Economic Statement. That involved a PowerPoint presentation, which was certainly the first time we had one of those under this Government anyway."

Another source said: "As you saw with the Trudeau visit, he has a different style to Enda. Not better or worse but different. For example, Fine Gael ministers meetings start earlier and, as such, there is more time to discuss the big political issue or challenge of the week. Meetings are also more likely to start and finish on time."

Other sources said Mr Varadkar "goes through non-contentious items very quickly leaving more time for big or important ones"; also, "there are a lot fewer late, or 'under the arm' memos coming to Cabinet"; "he tends to do a 'tour de table', inviting everyone to have their say rather than just taking questions on demand".

However, it is also understood that Mr Varadkar's style is giving rise to "certain tensions" within the civil service. A senior Government source said: "He is doing bilateral meetings with ministers and their secretary generals so he can get an overview of things, you know, spot potential future problems or banana skins and, other than that, assess progress on implementing the Programme for Government. He has already met Paschal Donohoe, Charlie Flanagan, Eoghan Murphy, Finian McGrath, Richard Bruton and Mary Mitchell O'Connor. There is no resistance so far, but you'd never know. Is there a certain anxiety at civil servant level? I'm sure there is."

The Government intends to hold a full 'away day' Cabinet meeting on climate change and the capital expenditure plan at the end of this month.

Yesterday, Fianna Fail ramped up its political attack on the Government, stating that a number of "key policy positions" taken by the Taoiseach, Leo Varadkar, "have been shown to have no substance".

PAC chairman Mr Fleming said Mr Varadkar "needs to be more honest and thoughtful regarding his new economic policies."Taoiseach Varadkar recently stated that he would use the State's Rainy-Day Fund in order to invest in infrastructure. This may sound like a reasonable proposal but it is lacking in substance. Officials in the Department of Finance confirmed this week at the Public Accounts Committee that there is in fact no money in the Rainy-Day Fund.

"The Taoiseach has also introduced a new concept called 'hidden fiscal space'. Department of Finance officials again have indicated that there is no hidden fiscal space.

"Taoiseach Varadkar was also forced to do a spectacular U-turn on his pledge to abolish the USC. In reality this tax will continue albeit under a new merged name.

"The Taoiseach is damaging his own reputation when it comes to economic matters. People want to see policies with substance rather than this new Leonomics."

A source close to Mr Varadkar said yesterday: "Leonomics - I'd say he will like that. Hopefully the people will too."

Sunday Independent

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