Coalition tries to buy time with cost-of-living package

The announcement of a package of measures by the Coalition on Thursday – after much internal wrangling – is meant to solve two problems. One is political, the other economic. The chances of it achieving either goal are only fair to middling.

The political problem is obvious: the Government has faced intense pressure in recent weeks as inflationary pressures weigh on people in the aftermath of Christmas.

Sinn Féin leader Mary Lou McDonald has bashed the Government repeatedly in the Dáil on the cost-of-living squeeze, every soundbite landing in a million Facebook feeds even if it fails to make the six o'clock news. Not a day goes by without media coverage of ordinary people facing difficulties paying for necessities.

That most of the pressure results from international factors such as the price of oil and gas which are being felt everywhere cuts little ice with consumers and voters. Whatever and wherever the cause of the price pressures, they are being felt right here, right now. For months it has been clear that the Government would be compelled to take action.

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Indeed, a series of measures was discussed at a Cabinet committee meeting before Christmas, which recommended the €100 rebate on energy bills. That has now been doubled, and is accompanied by several other measures costing half a billion euro in total. At Thursday's press conference, Minister for Finance Paschal Donohoe and Minister for Public Expenditure Michael McGrath sought to conflate budget day giveaways with the measures in this package – a total of €1.5 billion in cost-of-living measures, they claimed.

Of course, as Virgin Media’s Gavin Reilly pointed out, you could look at it another way, too – their budget day package didn’t work. Either way, eaten bread is soon forgotten.

Economic case

Recent weeks have seen strong behind-the-scenes opposition from Donohoe to any notion of a mini-budget. That opposition has not waned, say sources, but Donohoe is a politician first and he recognises the political need to “do something”: he just doesn’t think the Coalition should do as much as some of its senior members have argued in recent weeks.

That’s because the economic case for chasing inflation with more money is not, to put it mildly, a strong one. Even the Taoiseach cautioned against it last weekend.

But sometimes politics beats economics in the short term, even if politicians can’t ignore economic reality in the long term. What they hope is that the announcements on Thursday night buy time and political space for the Coalition, and that inflation eases. The economic advice is that it will. But the politicians know that the economists won’t be holding the baby if it doesn’t – they will.

The Government’s package will make a difference – though hardly a life-changing one – to some people who are being squeezed by rises in the cost of living. It runs a medium-sized risk of embedding inflationary pressures in the economy so they persist over a longer period of time.

The Sinn Féin proposal – some three times the size of the Government’s package, give or take – would make a bigger difference to a more targeted bunch of people, and in that respect would be more effective. But it runs a much larger risk of fuelling inflation, and so making the problem worse, and certainly longer lasting.

At another level, this is an example in policy as political communication. The Government is saying it understands the challenges people are facing: “We get it.” Sinn Féin is saying: “They just don’t get it.”

In that respect, whether the economics works is entirely secondary: first and foremost, this is about the politics.