Budget Digest: 2021

Calm on Merrion Street-the heart of Irish government-the night before budget day

A Fianna Fáil minister and a Fine Gael minister will stand up in the Dáil tomorrow to present their agreed budgetary vision for the coming year. It says something about the enormity of the Covid 19 crisis that the shared budgetary platform of the civil war parties will barely get a mention in dispatches. 

The Green Party already struggling for visibility in this government will need to have their fingerprints clearly visible on the budget. And they need to own it. Protracted public quarrels about whether the budget goes far enough on specific policies could end up being the ‘public’ take-away of Green involvement. There is a real challenge for the party, their political makeup requires that open debate and discussion of the budgetary measures is encouraged but in government there are real dangers that this openness could dilute the specific Green policies in the package. This year, the problem may be moderated by the enormous social spend that is likely to be announced.

Current speculation suggests that the ministers will reveal one of the largest spends ever by the state. This will be facilitated by fairly stable tax revenues and enormous planned borrowing. Ireland has borrowed heavily in the very recent past when dealing with the fallout from the banking crisis. It is not the size of the borrowing for 2021 that sets it apart, it is the fact that it will come with the sanction of nearly all members of the Dáil, is compatible with the broad thrust of advice from the economics profession and has the tacit agreement of European policy makers, including notoriously conservative central bankers. 

The European fiscal response to the Covid 19 pandemic is a huge departure from the fiscal conservatism which characterised the approach to dealing with the global banking crisis and public debt problems in Europe from 2008. Gone is the emphasis on cutting expenditure and raising taxes, a fiscal approach which some research has suggested had the effect of exaggerating the impact of the financial problems faced by states. Austerity has been replaced with pump priming. Across Europe, Governments are spending heavily to moderate the impact of Covid19. The European Central Bank has turned on the money tap and borrowing costs are exceptionally low facilitating the spending bonanza.

But this crisis presents an odd challenge for governments in how they spend these exceptional resources. From 2008, many governments across Europe were desperate for access to funds for economic investment. Schemes to stimulate economic activity abounded but for the most part the Irish government couldn’t afford any of them. The bailout agreement gave no lee-way. Now the government has access to money! And it has clear priorities in health and social spending but economic stimulus decisions are enormously complicated by ongoing health restrictions. The sectors of the domestic economy in greatest need of support are the ones that have been all but shut down by the government.

Tourism, hospitality, entertainment and retail are teetering on the brink but incentive schemes will have no effect if they are co-scheduled with rolling sectoral closures. Home improvements are already booming and there are existing schemes to encourage the purchase of electric cars. Creativity will be the order of the day but the government will be scrutinised to ensure that investment decisions generate long term returns otherwise the costs of the borrowed funds will be much higher than headlines suggest.

Increasing income supports is critical as the pandemic rages. But the money won’t flow forever. The government needs to carefully navigate its fiscal expansion with an eye to how it will unwind the supports as the crisis eases. As the opposition parties have already demonstrated earlier this Summer, reductions to income support schemes will be resisted bitterly and will not make this government popular. Planned elections are a long way off but once popular support is lost by an administration, it can be very difficult to recover. 

 Theresa Reidy

Department of Government,

University College Cork

Dr Theresa Reidy is a political scientist in the Department of Government at University College Cork. Her research interests lie in the areas of electoral behaviour and political institutions and her recent work has been published in Electoral Studies, Parliamentary Affairs and Politics. She is currently leading a comparative project on voter facilitation and engagement practices funded by the European Commission. She has given expert evidence to parliamentary committees, the Constitutional Convention of Ireland and the Citizens’ Assembly of Ireland is also a regular contributor to national and international radio and tv, and the print media. 

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