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Forget the Budget caution: If you can't be sure of winning the election, try buying it


The Rainbow Coalition's fiscal responsibility and caution was such that Bertie Ahern and Mary Harney won the 1997 election for Fianna Fail and the Progressive Democrats.

The Rainbow Coalition's fiscal responsibility and caution was such that Bertie Ahern and Mary Harney won the 1997 election for Fianna Fail and the Progressive Democrats.

The Rainbow Coalition's fiscal responsibility and caution was such that Bertie Ahern and Mary Harney won the 1997 election for Fianna Fail and the Progressive Democrats.

Despite pre-election promises to abolish hundreds of quangos, this Government established a new independent body, the Irish Fiscal Advisory Council, on a statutory footing to legislate a basis for fiscal responsibility.

Never again would politicians be permitted to prostitute themselves for electoral gain, ensuring independent compliance with disciplined fiscal rules.

It's all part of a radical, cultural sea-change agenda away from Bertieconomics. On Monday, they published an unprecedented Budget submission which went beyond their regular reviews. Professor John McHale, its chairman, starkly warned of the need for a final phase of "fiscal consolidation plans", a prudent budgetary stance, and no erosion of government's revenue raising capacity. Despite Exchequer windfalls and spectacular growth, they highlighted a budget deficit of €7bn this year and said it would take until 2018 to balance the books.

Undoubtedly, this intervention is in response to clambering ministers promising personal preferences for assorted tax cuts. Fine Gael and Labour ministers will politely bin this advice - while genuflecting to these gurus, with soothing references to avoiding 'boom and bust cycles'.

In the real political world, they'll be too busy seeking to secure their re-election. Indelibly etched on memories of Kenny, Noonan, Howlin and Burton is the 1997 general election outcome. Despite GDP growth then of 11.3pc and the first current budget surplus in living memory, their caution resulted in Ahern and Harney winning power for Fianna Fail/Progressive Democrat parties. Such was electoral gratitude for the Rainbow coalition's fiscal responsibility that they were precluded from government for 14 years. Everybody makes mistakes. Only political cretins and masochists repeat them.

'National interest' will be interpreted by incumbents as an overriding requirement to keep Fianna Fáil and Sinn Féin out of office. There is a minimal risk that those parties will outflank Government campaigning as austerity hawks. So the gap in the market is being competitive in the populism stakes.

The predominance of politics over economics was confirmed by news of the informal return of communications guru Mark Mortell to Government Buildings as supreme Fine Gael spindoctor in preparing an election narrative. In fairness, there are reasonable grounds for believing CSO growth figures can only gain further momentum.

Domestic favourable fortunes can be gleaned from:

Rapidly restored construction activity which should create 50,000 jobs, multiplying current construction GDP output levels;

Indigenous banks will eventually grow loan books, providing additional credit to fuel industrial investment and consumer spending;

Enhanced confidence enticed a savings ratio drop from 16pc to 11pc, a trend that's likely to continue with rising house prices.

Ireland cannot live off the consumption of a population of 4.6m, so external factors are pivotal. UK and US markets are moving into pro-cyclical election phases, David Cameron will use Tory tax cuts to repel UKIP, Hillary Clinton needs feel-good factors to keep Democrats in the White House, and Draghi's ECB quantitative easing can restore growth to the eurozone economy.

In addition, the weakened, devalued euro enhances competitiveness, resulting in more exports.

All these factors militate against excessive budgetary caution.

Preparations for Budget 2015 are well under way. Legacy issues from the past three budgets remain unresolved, however.

The 'temporary' pension levy raised €1.4bn, having been increased from .6pc to .75pc. Its legislative span ends this year. Its abolition, along with retaining the 9pc VAT rate on the hospitality sector (temporarily reduced from 13.5pc, creating 31,000 jobs) means a hole of €700m.

Erroneous health budgets require rectification of at least €600m. However, national debt servicing costs are down by €370m, while declining numbers on the live register will save similar amounts in dole payments.

Each 1pc of GDP growth means added Exchequer returns of more than €1bn. A 4.5pc outturn this year and compatible forecast next year mean happy days are here again. A neutral Budget would mean tax revenue windfalls rise from €37.8bn to more than €41bn.

Winning the next election is the only game in town. A three-year tax reform package contains three jewels in the crown. For the low-paid, Universal Social Charge changes will target exemptions. Currently 2pc is payable on the first €10,036. A threshold of around €300 per week tax free from any liability is relatively cheap. Expect a fanfare of progressive raising of these limits.

For middle-income earners, especially 330,000 workers earning between €30,000 and €40,000 annually, there'll be good news on the way. Gradual incremental increases in the current entry point of €32,800 can ensure those on the industrial average wage will only pay income tax at the lower 20pc rate. Also by 2017, you can anticipate promises of top marginal personal taxation of 50pc, down from the prevailing 52pc.

The biggest headache for the Economic Management Council is resisting internal departmental spending pressures. When cupboards are bare, the mantra of "inability to pay" repels pressure groups and vested interests.

Pent-up demands across every department resemble air-traffic controllers with umpteen planes in a holding pattern, seeking to land at once. Form an orderly queue: reversal of public sector pay cuts; preschool and education needs; money for speech therapy and mental health; increased welfare rates and enhanced household benefit packages.

The election countdown has begun. Credit for our economic salvation has been ditched in favour of 'politics as usual'. If you can't be sure of winning the election, then try buying it. You can rest assured that this will simultaneously be camouflaged with sternly stated time-tabled targets of achieving a current Budget surplus. Meanwhile, don't be surprised if spending estimates for that year require lots of year-end additions, as project approvals are issued to Government candidates. In an auction there are no medals for under-bidders. It all part of the much heralded "Democratic Revolution".

Irish Independent