It’s not the lack of money but instead the many billions of euros at the disposal of Finance Minister Jack Chambers in his budget this week that is troubling senior economists in Dublin.
His counterpart across the Irish Sea, Rachel Reeves may not have the money, but Chambers for sure has enormous resources to unleash huge budget give-aways on Tuesday. Whether that is a good idea or not is only belatedly coming under scrutiny.
The fortunes of a booming economy have long been pegged to the profits generated by the large numbers of tech multinationals based in the Republic.
From Dundalk to Cork via the Dublin and Galway suburbs, US corporations, including payments firm Paypal, iPhone maker Apple, Google-owner Alphabet, pharma giant Pfizer, chipmaker Intel, as well as Meta which owns Facebook and Instagram, not only provide many thousands of jobs but are throwing off record levels of corporation and income tax receipts for the Irish exchequer.
If anything, Dublin has an embarrassment of riches. For the first eight months this year, the Government had already collected a total of almost €60 billion in tax revenues, up by €6.7 billion from the same period last year.
The record haul includes an enormous €16.3 billion in corporation tax receipts taken in before the usual late-year rush for big corporations to settle their tax bills. And it doesn’t include the €14 billion coming in time to the Government from the Apple tax-back case. Newly promoted finance minister Chambers should even have sufficient resources left over to run budget surpluses and direct more money into two sovereign and savings funds.
So far so good. But what is worrying analysts is that the billions of euros in additional budget spending and the myriad pledges for tax cuts and tax breaks could yet destabilise a thriving economy by unleashing renewed price pressures.
There is no mystery about what the coalition is up to: The budget could likely be a prelude to Simon Harris and Micheál Martin calling an election for mid-November, as they seek to stymie Sinn Féin, which until recently appeared a shoo-in to win power.
We already know that Fine Gael and Fianna Fáil ministers are planning the largest fiscal expansionary budget in the history of the state because their special advisers have been saying as much for months. And the media fanfare surrounding the budget largesse has been like no other.
The Irish Independent last weekend splashed with just such a story. The report said Chambers will offer private tenants money back through their public tax bills. Another story has social protection minister Heather Humphreys planning what was called a “budget win for pensioners”.
Yet another headline has an “insider” account of a pre-budget push to scrap what is claimed to be the “grossly unfair” inheritance tax (one of the few wealth taxes in the state). That campaign is being led by former Fine Gael minister Alan Shatter, who lost his Dáil seat in prosperous South Dublin as far back as 2016.
The Irish Times has run similar reports. Unnamed ministers have pledged “significant income tax cuts and lump sum payments”, while RTÉ has reported on budget plans to push up incentives to home buyers – at a time when there are paltry few homes to buy.
The push back by economic commentators against budget PR boosterism or electioneering has been unusually tame. Instead, warnings against unbridled pre-election budget spending have been left to a handful of economists.
Seamus Coffey, the University College Cork economics expert, has been reappointed after a gap of a few years to the chair of the Irish Fiscal Advisory Council, the budget watchdog. The Fiscal Council has an interesting history. It was set up in 2011 in the wake of the disastrous banking and property crash that led to Ireland needing a sovereign bailout. However, the ‘advisory’ bit in the name gives the game away – it has no fangs. Despite a series of spats with senior ministers and officials in the past, its warnings have mostly been ignored.
“It is the last budget before the election, whenever that may be. It is against a background of a very strongly performing economy, low unemployment, record employment, and the public finances are in a strong position. At heart, a strong economy,” Mr Coffey tells the Irish News.
“A lack of money is not the problem. Usually we had not enough money and too few jobs. Now we have loads of money and loads of jobs,” he says. “The risk now is that it could be driven by inflated levels of Government spending,” says the head of the budget watchdog.
Excessive budget spending that leads to unwanted consumer spending could sabotage the policy aims of building more homes. Separately, the Economic and Social Research Institute is likely to comment on the budget and Government spending in a major commentary published later this week.
Ciarán Nugent, economist at the National Economic Research Institute, or Neri, which has offices in Dublin and Belfast, also warns against pumping money “into an economy that doesn’t need it, and cutting tax for the relatively wealthy who do not need it”.
“We have the budget surpluses and we will have the Apple tax money coming in, in a while,” Nugent says. Appropriate spending on housing, childcare, and healthcare could bring down the costs to the average household, he tells the Irish News.
- Eamon Quinn is at eamon.quinnbiz@gmail.com
