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Election budgets are not always giveaways

There is a long history of governments tightening spending even as an election looms

Then minister for finance Brian Lenihan announced a particularly tough budget for 2011 in the teeth of the financial crisis. Photograph: Matt Kavanagh

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John FitzGerald
Fri Jun 28 2024 - 06:00

In the run-up to the forthcoming election, both the Irish Fiscal Advisory Council and the Central Bank have argued that this autumn’s budget should pursue a sensible fiscal policy – with the economy at capacity, the budget should not pump more money in.

There is concern that the Government would bring in a so-called giveaway budget to enhance its electoral prospects. The history of pre-election budgets over the last 70 years, however, shows that tough budgets have featured as often as splurges to try to buy an election.

The 1957 election took place against the background of a crisis triggered by unwise economic moves by the outgoing government, as Patrick Honohan and Cormac O’Gráda have shown. The interparty government had tried to keep interest rates below London’s, in spite of a fixed exchange rate with sterling. The result, naturally, was an outflow of funds to the UK in search of higher returns. To address that problem, the government brought in a very tough budget. This was the wrong answer to the problem they had created. The economy was performing miserably and could have done with a stimulus. Not surprisingly the outgoing interparty government lost the election.

The 1976 budget before the following year’s election was the toughest budget since the foundation of the State, at a time when growth was below trend, reflecting, among other things, the longer-term consequences of an oil price shock. While the public finances needed rebalancing, the economy was performing badly and the austerity was excessive. The outgoing coalition lost the election in May 1977, as the economy was beginning to recover.

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The incoming Fianna Fáil government won an exceptional majority. While it might have won the election without its giveaway manifesto, it made exceptionally unwise commitments and then compounded its error by implementing them in a full-blooded way, pumping extra money into an economy that was by then growing rapidly anyway. The consequence of this financial profligacy was a decade of austerity in the 1980s, as the public finances developed a yawning gap. Five general elections – in 1981, two in 1982, in 1987 and in 1989 – took place against the background of necessarily very tough budgets to rein in the public-finance crisis.

Ruairí Quinn’s responsible stewardship as minister for finance was not rewarded in the June 1997 election, which the outgoing rainbow coalition lost.

While a generous budget may influence electoral outcomes, the trajectory of the public finances over the lifetime of a government is probably more important

A generous pre-election budget in 2001 paved the way for the 2002 victory by the outgoing Ahern government. Some stimulus to the economy had been warranted as growth had slowed with the bursting of the dotcom bubble, but the scale was excessive. In 2007 it was another pre-election spree, following on from excessively stimulatory packages in 2005 and 2006, when the economy was at capacity. That budget further stoked house price inflation, making the collapse in 2008 even more severe.

Commenting after the election, a Fine Gael opposition spokesman acknowledged the serious dangers to the economy from excessive demand, but recognised that the electorate had not been in a mood to hear such bleak advice.

When the financial crisis hit in 2008, government revenue from property collapsed and exchequer borrowing reached unheard-of levels. Thus coming into the election in 2011, the outgoing government had no choice but to implement a very tough budget. Even with those harsh measures in place, the International Monetary Fund and the European Union still had to come to Dublin to provide a bailout.

From 2010 through to 2014, stringent budgets were necessary to restore order in the public finances, and the economy finally returned to growth. The budget for the election year of 2016 was appropriately neutral, with no special handouts.

Thus, Ireland’s experience with pre-election budgets is mixed. While a generous budget may influence electoral outcomes, the trajectory of the public finances over the lifetime of a government is probably more important.

Choosing an over-generous budget this autumn might not confer electoral advantage. Any giveaways in the budget won’t reach people’s pockets until the end of January, very possibly after an election takes place. While the promise of good things to come might have some influence on the election outcome, Oposition manifestos are likely to be even more lavish. Ireland’s Opposition parties don’t currently seem set for Keir Starmer-like prudence.

Housing and health are likely to be key battleground issues – fiscal prudence may not feature much in the debates. That could change if this year’s budget was seen as dangerously profligate, jeopardising the economic gains since the end of the crash period, and a largely responsible budget stance over the last decade.

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