Stephen Collins: Budget could channel politics in different direction

The biggest spending splurge in the history of the State has the capacity to reset Irish politics if the array of measures to protect livelihoods from the Covid-19 pandemic work, and the public is persuaded that the Coalition Government really is committed to the common good.

According to conventional political wisdom it is only a matter of time before Sinn Féin takes over the reins of government but there is nothing inevitable about it, and this budget could channel politics in a different direction and ensure that the centre does hold, just as it did in the face of the financial crisis a decade ago.

For that to happen the Coalition will have to show that it is capable not only of providing competent government but that its actions are based on the fundamental principle of fairness. The budget, clearly designed to protect those most affected by the fallout from Covid-19 which has had a disproportionate impact across society, is a good start.

The other vital element of the political strategy will be to convince the electorate that the radical alternative being promoted by Sinn Féin and its hard left allies will destroy the basis of the country’s prosperity given their deep-seated hostility to the enterprise economy, foreign direct investment and the direction of the EU.

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The fact that the Opposition tried to move the political debate away from the budget less than 24 hours after it was announced was a mark of its success.

The aggressive denunciation of the budget by Pearse Doherty of Sinn Féin immediately after it was unveiled on Tuesday looked so absurd in the context of the enormous spending plans that his party had no option but to move on as quickly as possible.

The striking thing about the spending plans unveiled by Paschal Donohoe and Michael McGrath was that they went far beyond a range of measures designed to protect people from the fallout from Covid-19. Also included were ambitious plans to ramp up spending on housing and health, the two issues which bugged the last government and dominated the general election campaign last February.

The question now is whether the Coalition has the energy and commitment to ensure the extra resources are used to make a real impact on those problems as well as making progress on the green agenda.

Cheap money

An important point made by Donohoe in explaining how such massive spending is now possible was that the prudent approach to the last few budgets has given Ireland a level of credit worthiness that will allow the exchequer to borrow enormous amounts of cheap money in the current emergency.

Underpinning that is the decision of the European Central Bank to keep borrowing rates close to zero. While that policy will continue for the foreseeable future it will not continue forever, so the critical question is whether the State will be capable of winding back to a sustainable level of borrowing without provoking serious political discontent when the days of cheap money come to an end.

That will largely depend on the future course of the pandemic. Most of the extra spending announced in the budget involves once-off costs in supporting workers and businesses to get through the crisis. If the threat posed by the virus recedes in the next 12 months much of that spending can be wound down.

The extra spending on health, housing and education will continue, but if the strategy works and there is a return to growth the exchequer should be able to afford it.

A silver lining to the dark cloud that has enveloped the country since early spring is that the economy has not shrunk by nearly as much as forecast at the beginning. This is largely due to the thriving multinational sector which has not only kept tens of thousands of people employed in well paid jobs ,but has contributed a significant amount of revenue to the exchequer in corporation tax.

The importance of this sector to the economy is a vindication of the industrial strategy pursued by Fianna Fáil and Fine Gael for decades.

It also raises the question of what kind of state the economy would be in if the policies so hostile to this sector advocated by Sinn Féin and its allies had been implemented at the time of the financial crisis.

Political centre

One of the main problems for the political centre in Ireland over the past decade is that Fine Gael and Fianna Fáil have been unable to grab hold of the narrative from their left-wing critics.

All of the economic figures show that we are one of the richest countries in the world with a progressive tax system which redistributes money from the well-off to those in most need, but that is not how things are perceived by a majority of people.

The scale of the budget spending plans provides the Coalition an opportunity to change that narrative once and for all. Whether the three parties involved can do it with sufficient vigour and determination will determine the fate of the nation for decades to come.