Thursday 22 November 2018

For better or worse, Donohoe represents a safe pair of hands

The Finance Minister made a series of choices in the Budget aimed at keeping us grounded in 2018, writes Kevin Doyle

Challenge: Paschal Donohoe’s favourite word. Photo: Colin Keegan
Challenge: Paschal Donohoe’s favourite word. Photo: Colin Keegan
Kevin Doyle

Kevin Doyle

The choice facing Paschal Donohoe as he took to his feet last Tuesday was to accept things as they were or take responsibility for changing them.

Whether in good times or bad, budgets are about making hard choices. A minister can upset an entire section of the population by ignoring them during growth periods, just as much as he can by targeting them during austerity.

Of course, Donohoe's choices were somewhat limited by the peloton of Independents and Fianna Fail who keep the 32nd Dail in motion.

But, ultimately, he had to decide whether we stand still or move forward towards something new.

Ireland has many problems, not least housing and health - but at the same time people are back at work and the economy is growing at the fastest pace in Europe.

Therefore, finding a balance between solving our social ills and dealing with the pent-up demand for a tangible sign that the recovery is actually in full swing was no small task.

Perhaps that was why Donohoe decided to strike an almost fearful tone in his Budget Day speech.

A Budget that brought a little bit to everybody, even if it was just €6 a week, would normally be welcomed.

But as the minister noted, there was nobody chanting his name in the Dail bar this week, as happened to Charlie McCreevy in the wake of Celtic Tiger budgets.

In his hour-long address, Donohoe used the word 'challenge' on 10 occasions, while 'risk' featured eight times.

"The list of potential external risks is lengthy. It includes Brexit, potential changes in US trade policy and various geo-political threats that could have impacts on the global economy," he said.

By contrast, Leo Varadkar's buzzword of choice, 'opportunity', received only eight mentions in total.

It's not too long ago since Ireland spent 100 days locked out of the markets; now we are able to issue 100-year debt.

But Donohoe wasn't talking up our chances in an unpredictable environment.

By spreading the limited wealth thinly, he didn't endear himself to the broad population. Yet at the same time he didn't alienate anybody. In the world of Joe Duffy's Liveline, that's probably a result.

At an INM business breakfast last Thursday, Donohoe outlined to the audience that he sees balancing the book as the key achievement of the Budget.

"Even if we were not required to do it [by the EU] that's what I would want to do anyway," he said.

He argued that at some point in the future, Ireland will have to borrow again to invest in infrastructure and needs to keep credible deficit commitments in the interim.

"I made the choice that if I wanted to spend more, I wasn't going to borrow more to do it. I made the choice that if I wanted to spend more, I wasn't going to increase personal taxation to do it," Donohoe said.

He went on to say Ireland needs to get its overall debt under control.

"The kind of debt my kids will deal with in the future is higher than it needs to be for an economy of our scale," he added, making a rare public reference to his family.

It will be interesting to watch the approach taken by UK Chancellor Philip Hammond when he announces his Budget on November 22.

My money would be on a more positive message, despite the reality that Brexit-bound Britain faces a far riskier future than Ireland.

Donohoe worked off a projected growth rate of 3.5pc for next year. Last Tuesday, the IMF said it anticipates the UK economy - which grew at just half the rate of the eurozone's in the second half of this year - will expand by 1.5pc in 2018. But that's unlikely to stop Hammond talking up the potential for Britannia to rule its own new world order after leaving the EU.

So it makes you question the thinking behind the fearful tone adopted here.

Sources told the Sunday Independent that Donohoe didn't want the first Budget since the changeover at the top of Fine Gael to give the perception of a pre-election gambit.

"The idea was for a long-term recipe. There are a lot of moving parts at the moment," the source said.

That's why his spending increases are broadly in line with growth projections, with the exception of health and housing.

"The choice I made is that if any government spending was going to grow by more than 3.5pc then the decision would be made on a policy basis. That's why I chose health and housing," a sprightly Donohoe said at the 7.30am gathering last Thursday.

He made the point that the last time the Irish economy was heading towards full employment expenditure grew by between 8pc and 12pc.

The only major controversy in the Budget was the hiking of stamp duty on non-residential land from 2pc to 6pc.

In terms of a revenue-raising measure, it was almost too easy - except for the farmers.

The Dublin Central TD saw no problem in hitting agricultural land, but don't be surprised to see a half backward step on that one at a later stage. Fine Gael doesn't like to upset farmers, even if the average farm only goes up for sale every 400 to 500 years.

That aside, it's hard to argue against a sugar tax being announced on the same day as a major global report showing a tenfold increase in the number of children and adolescents with obesity in the past four decades.

A hike in cigarettes is standard practice, and whoever thought it was a good idea to have a lower rate of VAT on sunbeds than sunscreen?

So overall Paschal Donohoe chose not to make any bold changes in his Budget - but with the economy on fire (but not yet overheating) that in itself is a change from the ways of the past.

Sunday Independent

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