Tuesday 22 January 2019

David Chance: 'Donohoe has delivered but it will get harder from now on'

 

Finance Minister Paschal Donohoe
Finance Minister Paschal Donohoe

David Chance

The Finance Minister has endured months of criticism for spurning the opportunity to put Ireland's finances on a more sustainable path.

Now, Paschal Donohoe can at least afford himself a wry smile after data released by the Government showed that State revenues exceeded spending for the first time since 2006, when you strip out one-off items.

In fact, the surprise news was so good that Taoiseach Leo Varadkar appeared to pull a stunt from Donald Trump's playbook by pre-announcing the numbers hours ahead of the official release.

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It is true the State's debts remain huge, and are the third-largest in the world on a per capita basis, but the turnaround in finances has been nothing short of breathtaking.

In less than 10 years, Ireland has turned Europe's largest budget deficit relative to the size of the economy into a surplus. Lest we forget, in 2010, the deficit was equivalent to almost a third of economic output; now we have joined the 12 EU countries that had already posted a budget surplus in 2017.

While much of the work was put in by Mr Donohoe's predecessors, Brian Lenihan and Michael Noonan, he has at least used the fair winds from a global economic recovery and rising tax revenues to make the State's finances stronger as we head into the uncertainty of Brexit.

While it is true he could have done better - there was €600m in health overspending alone that was masked by the surging tax revenues - he could also have done much worse and many finance ministers have.

Italy, Europe's third-largest economy, is flirting with recession and looks set for a budget row with Brussels, while France's reformist President Emmanuel Macron had to buy off the "gilets jaunes" protesters with spending promises that may well land Paris in the excessive deficit procedure of the EU.

Britain faces years of sub-par growth and rising budget deficits if it pushes ahead with Brexit, while Trump sent the economy on a debt-fuelled sugar rush that is now coming to an end.

So, yes, global growth will slow and with it the exports that have helped pull Ireland out of its slump as well as tech company tax receipts.

Yes, other countries are going to tire of our low tax regime - and the smart minds in the Department of Finance are going to have to come up with other ways to raise money if the State wants world-class infrastructure, health and education services.

What is impressive though is even with the difficulties of managing a coalition Government, Mr Donohoe has achieved as much as he has.

He deserves praise for pushing through an end to VAT exemptions that had cost the State more than €2.5bn.

Mr Donohoe may have flunked the test on carbon taxes. But in the light of the protests in France, he has perhaps shown greater understanding of what can be done at any one time.

Irish Independent

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