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Hey, big spenders - you risk leaving us all high and dry if the economic tide goes out

Dan O'Brien


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Vying for votes: Richard Boyd Barrett

Vying for votes: Richard Boyd Barrett

PA

Vying for votes: Richard Boyd Barrett

The political parties have, however belatedly, published their election manifestos. Instead of sharing them with voters as soon as the election was called, they all held back their full packages of pledges. That allowed for tactical tweaks on issues that arose unexpectedly, such as pensions. In politics, there can often be a late-mover advantage.

Having made that point, let's focus today on the manifestos of Fianna Fáil and Fine Gael, as one of those parties will lead the next government, provided the 33rd Dáil produces a government (the chances of another election in 2020 are not negligible).

Taxation and the role of the State are the central political issues in well-established democracies. They are the foundation on which issues such as housing and health rest.

Should people keep more of their money and make their own life choices, on retirement saving, for instance, to pick just one topical issue; or should governments raise more taxes so that the State can do more?

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Vying for votes: Micheal Martin

Vying for votes: Micheal Martin

Collins Dublin, Gareth Chaney

There has been a shift toward the second option across the Western world in recent years.

Concerns about the inefficiencies of inherently bureaucratic states have waned, while worries about the weaknesses of capitalism have waxed.

Political discourse in Ireland reflects this wider trend, which has accelerated a shift back to auction politics since the end of the austerity years (it should be said that auction politics is not unique to Ireland, of course).

Both of the big parties, and all others for that matter, are prioritising spending increases over tax cuts. Fianna Fáil's manifesto says that if the party is elected it will devote four times more to spending increases than to tax cuts.

Fine Gael has pledged even more towards spending, with additional commitments of €13.6bn over five years compared with €3bn for tax cuts (in 2021 alone, the party has pledged as much additional spending as it has in tax cuts in the entire 2021-2025 period).

With all of the smaller parties to the left of the big parties, the likely composition of the next Dáil points to the next government heavily prioritising spending increases over tax cuts.

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Vying for votes: Leo Varadkar

Vying for votes: Leo Varadkar

Collins Dublin, Gareth Chaney

That conclusion is reinforced by some other factors. Private sector pay growth is now strong and accelerating. That should mitigate, to some extent at least, pressure for tax cuts.

Another factor favouring more spending is that so much political and media discussion is focused on solving society's ills with more government action. In politics, it is often better to do ineffectual or even counter-productive things than to be accused of doing nothing or too little.

With so many spending pressures, not all of the (modest) tax cuts the big two parties are promising may materialise. They certainly won't materialise if the economy doesn't continue to grow strongly - Fine Gael's manifesto forecasts include a large and steady increase in the number of jobs, 1,000 every 10 days, for the next five years.

Everyone hopes that such a rosy scenario unfolds. But it is not at all certain. If the tide of boom goes out, an ugly vista will be revealed.

As discussed in some depth in last week's column, the next government will inherit a mountain of debt. This won't present a problem if everything carries on as it has in recent years.

But if the economy slows and/or international conditions deteriorate, it will, and the many promises made in the election campaign to date will look less affordable. It cannot be stressed enough that everything that has been pledged by the parties to date is predicated on strong economic growth continuing over the term of the 33rd Dáil.

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Vying for votes: Eamon Ryan

Vying for votes: Eamon Ryan

PA

Predictably, if perhaps understandably given the nature of electoral politics everywhere, neither of the manifestos says much about how the parties would deal with a major reversal in the State's fiscal fortunes. There is certainly no indication of what the parties would do if they were to face a choice between reversing recent spending increases and hiking taxes further.

Hopefully it won't come to that. And there is reason to believe that a return to austerity can be avoided. One is that the economy remains competitive and growth has not been fuelled by credit. That means that the next downturn should be a more 'normal' recession rather than a crash.

Another reason is that some lessons have been learnt, if not as many as one might have hoped for.

If the current Government had been truly prudent, the public finances would have been put back in the black sooner than they were. For one of the fastest- growing economies in the developed world since 2013 to have only just balanced its books is not anyone's definition of fiscal prudence.

But it would go too far to say that no lessons have been learnt, as more than a few observers have said in reaction to the blizzard of promises the parties are making.

The Budget for 2020 was genuinely prudent. Even though an election was imminent, the Government rightly based it on no-deal Brexit scenario.

More generally, the rate at which total government spending has gone up over the past half-decade has been far below the crazy years from 2000 until the crash.

This, to a great extent, reflects new constraints, particularly at European level. The vast array of new budgetary rules on governments in the euro area may be imperfect, but they are more meaningful than the toothless ones that were in place for the first decade of the single currency's existence.

Overseeing these rules are a new national budgetary watchdog and the more watchful eyes of the technocrats in Brussels.

These changes show that lessons have been learnt. Have they been enough? We will know that for sure only when the next downturn comes.

Irish Independent