In the 2016 general election, with the memory of the financial crash still firmly in voters’ minds, the five main parties acknowledged the importance of staying inside fiscal limits. They set out their manifestos within the fiscal envelope proposed by the Irish Fiscal Advisory Council, though, in practice, the manifestos contained commitments exceeding those limits.
The further away from the fiscal crisis years of 2008-2013, the greater the pressure on political parties to promise an ever rosier future. In the 2020 election, the acknowledgment of fiscal limits was more perfunctory than in 2016, with a range of uncosted commitments that went beyond what the economy could reasonably afford.
Following on from a giveaway budget last month, no political party, even if it privately believes it sensible to do so, now feels it possible to keep its manifesto promises for the coming general election within the range of net expenditure suggested by the Irish Fiscal Advisory Council.
While many of the big elements in election manifestos have been individually costed, aggregate cost figures are missing for the totality of any individual party’s promises. Those totals, if available, would highlight the gap between ambition and prudence. If we add up the cost for any party of its plans to fund better public services, more investment, cheaper childcare and cuts in taxation, the totals go well beyond what the council suggests would be sensible or safe.
With a fully employed economy and bulging exchequer coffers, the immediate problem is not that these giveaways can’t be afforded, at least in the short term. However, the US election result may mean rockier times ahead.
Most of our corporation tax revenue, amounting to 6 or 7 per cent of national income, comes from US multinationals located here. They provide 8 per cent of our jobs. Spending our current revenue bonanza could be very foolish if US tax and tariff policies change dramatically. Voters might be wise to pick the parties with the fewest giveaways, not those promising the most.
I don’t see any party promising to prioritise the public good over individual planning objections to badly needed infrastructure
There is also a real limit on the capacity of the economy to deliver all these goodies, with big bottlenecks, and shortages of key staff, such as builders, teachers, GPs and police.
All parties acknowledge that investment to meet our future needs is crucial. While they all plan to spend more, there is less in manifestos on how to tackle key practical, regulatory and planning obstacles.
Fine Gael is suggesting a new Department of Infrastructure, whereas Fianna Fáil wants to give increased responsibility to the NTMA for making the investment happen. New roles or titles is the easy bit: what matters is increasing the resources and expertise devoted to project management. Sinn Féin wants to hire more planners, but I don’t see any party promising to prioritise the public good over individual planning objections to badly needed infrastructure.
All parties want to virtually double housing output. However, with full employment, producing more homes will mean producing less of other goods and services. Without redirecting personnel from elsewhere, investment won’t happen because the workers will not be available. While it may be easy for the next government to spend money beyond what is wise, unless supply constraints are eased, the result will be higher cost inflation rather than more output.
[ Finance Minister – The GameOpens in new window ]
To illustrate the hard choices that will face the next government, the fiscal advisory council has developed an election game, available on its website. There you can play minister for finance and practise the choices and challenges the next holder of that job will face. The Irish Fiscal Advisory Council model is programmed to spell out the real-world consequences of the budgets you have in mind.
ESRI colleague John Bradley and I had fun developing a somewhat similar game in 1988, hosted at a UCD open day. In our game, the objective of the minister for finance was to remain in office for five years, while reducing unemployment and government borrowing. If you tanked the economy or the markets (as many players did), you got the following message: “The gnomes of Zurich are hopping mad. You have been replaced as minister.”
Former taoiseach Garret FitzGerald’s simulated budget achieved a good economic score – not all his real ones did, but his government failed to retain office in the game. However, he actually made it back to the Dáil the next year. Best of our political players was the late Mary O’Rourke. In the game, she both managed a creditable economic performance, and held her seat.
The overall winner was an anonymous secondary schoolgirl. So, sadly, I cannot tell whether she has made it in the world of finance, politics or elsewhere. Otherwise, she might be worth a vote.
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