Paschal Donohoe is back – and he’s still as prudent as ever.
After a couple of weeks on holiday, the Finance Minister was sitting at his desk in Merrion Street crunching numbers and trying to balance the books.
With most of his ministerial colleagues still sunning themselves, Donohoe was launching his department’s Tax Strategy Group papers.
The documents are eagerly anticipated in political circles every year as they give an insight into the Government’s thinking ahead of the Budget.
This year, as the Government has been at pains to tell us, it is going to be the Cost-of-Living Budget. The Budget to put money back into the pockets of citizens struggling with record levels of inflation.
The papers make all sorts of great suggestions, like increasing all welfare payments by €15 a week and slashing taxes for two million taxpayers.
Officials even had the decency to have a look at Fine Gael leader Leo Varadkar’s 30pc tax rate idea – but were quick to point out this would only reduce tax for one million people. The Department of Finance seems to be trying to let Varadkar down gently on this one.
Nonetheless there will be lots of tax cuts in the Budget, the soon-to-be Taoiseach has promised.
But back to Paschal Donohoe, who at a press conference on the tax papers revealed he is still very committed to “balancing our books”, which means less spending and more saving.
He is concerned about the State’s reliance on corporation tax, mostly from multinational companies that base their operations in Ireland.
In the first six months of this year thanks to corporation tax, and all the tax we pay on goods and services, the Government has a surplus of €5bn in exchequer funding.
That’s great news, you might think, and surely the Government could give most of that back to hard-pressed citizens in the form of tax cuts and welfare increases?
We need to take great care regarding how we use money that we may not have in the future again
Well, that’s not looking likely. Donohoe warned €3bn of the surplus is coming directly from corporation tax and insisted he is concerned about this revenue stream drying up.
“I do believe that we need to examine again where we are with the level of corporate tax we are receiving and Government should consider how best that money can be used in the time ahead,” he said.
Donohoe also noted the international developments taking place around corporation tax such as the Organisation for Economic Co-operation and Development (OECD) agreement on 15pc tax rate.
This is obviously up a few percentage points on our own much loved (by international tech companies) 12.5pc corporate tax rate.
So what does Donohoe want to do with all this extra cash in the lead-up the Budget?
The Dublin Central TD’s ministerial colleagues would like him to spend, spend, spend. Especially since the public has been promised a special package of one-off measures which will be announced on Budget Day and come from any leftover money the Government has from this year’s tax take.
Electricity credits and fuel allowances to beat the band have been suggested, but we are still in the dark as to how much is going to be spent.
Ministers are hoping Donohoe will splurge every penny he has on voter-pleasing measures which will reduce bills and give them some extra money to spend on themselves and their families. But that’s just not in Prudent Paschal’s nature.
Donohoe was asked at the press conference if he planned to funnel some of that extra corporation tax cash into his Rainy Day Fund.
As is his want, he danced around the question without answering. However, he concluded his remarks by saying: “I think we need to take great care regarding how we use money that we may not have in the future again.”
So, yes, he is considering topping up his much depleted Rainy Day Fund which he was forced to raid during the Covid pandemic – which was more like a rainy two years than a rainy day.
How much will be stowed away to prepare for the next impending financial disaster to besiege our small open economy of a country is anyone’s guess.
This year, it’s going to be the Cost-of-Living Budget
They’re predicting a recession by the end of the year in the UK. Donohoe doesn’t think we’ll have one here this year, but next year is a possibility so perhaps he is right to prepare for the worst and hope for best.
But a big announcement of a Rainy Day Fund full of billions of euro is not going to be celebrated by most people on Budget Day as nights get longer and families start to argue over when the heating should be turned on.
“Great, a rainy day fund, that’s what everyone is saying we should do on the doors,” one minister sarcastically said.
Holding back tax take for a rainy day will also play into the opposition’s hands, and you can be damned sure Pearse Doherty will be shouting at the top of his voice across the Dáil chamber about how he’d have spent the whole pile of money on welfare benefits if he was finance minister.
Paschal’s prudence may have hit Fine Gael electorally in the last election – but it did mean the country’s finances were in a good place to deal with the mammoth costs of the pandemic.
But Covid also means people have got used to the Government spending big and they’ll be hoping the minister loosens the purse strings next month.