Government has run out of road on spending to keep up with demand

We are at entering the four most dangerous weeks in Irish economic history since the last economic crash. The capacity for national self-sabotage between now and budget day appears unlimited. Having perfected the art of spending, without taxing to support the State sustainably, new degrees of detachment from reality have been arrived at. Escalating energy costs, the brunt of which have not been felt, have unleashed unrealisable expectation for intervention. The scale of what’s required to cushion the blow is unaffordable.

The Government’s problem is not that it did not prepare for an energy crisis that it had ample warning of. Its problem is that it failed to warn the population of any impending crisis at all. So committed was the Government to promoting misplaced optimism that events have caused a political whiplash. Next month’s budget was to have been the first one in three years based on a back-to-normal scenario. It was an opportunity to re-establish the credibility of a process, which had turned into a concertina, expanded with each exigency, in every year.

This is a country that hasn’t had a budget that lasted 12 months, since 2019. Effectively, a new budgetary culture took hold; a straight bet on more corporation tax funding more debt.

We have a national conversation that is based on the premise of demanding more, unpunctuated by any question of where it will come from, or how it can be afforded. Supposedly serious conversations on radio and TV entertain every demand but never interrogate the cost. Our State expanded in a makeshift fashion; unconnected with sustainable resources required for the task. Ireland now depends on literally a handful of the world’s largest multinationals for its day-to-day spending. As a State, we live hand to mouth and gorge simultaneously.

Inside TV chef Clodagh McKenna’s new compact kitchen: why big isn’t always better

---

Can we finally say goodbye to shaming women for letting their hair go grey?

---

100 great restaurants and places to eat around Ireland this summer

---

Robert De Niro’s raging at Trump outside courthouse was an extraordinary moment in American public life

---

This winter a pincer movement of rising costs and inflation will reduce real incomes. That means different things to different people. For some it will be inconvenient, but for others it will be unaffordable. A critical question is at what point rising energy bills become unbearable, and what happens then. There is a real question of whether the centre of political gravity will shift to the streets for the first time in a decade. The Government ran ahead of popular demand for years by borrowing to spend. The danger over the next four weeks, is that in reacting to political pressure and public anger it will succeed in damaging the economy, while failing to save itself.

The lack of preparation for a cost-of-living crisis this winter is closely connected to the wider culture caused by burgeoning corporation tax. It began a generation ago when the 12.5 per cent rate was negotiated as an innovative tool in a competitive economy. That economy went to seed because of over-dependence on stamp duty in a building boom. The lesson to be learned was to widen the tax base, but we wouldn’t. Instead corporation tax is now the new building boom and hubris is the common cultural context of both. First the OECD and then Donald Trump were to take the punch bowl off the table. Instead the party went on, and got bigger. Now the 15 per cent minimum rate for very large companies in the US, recently agreed by the US Congress in the Inflation Reduction Act, will perhaps be equated with the OECD’s 15 per cent. If so, that will be the basis for us to move on to the higher rate. That would fix the headline rate for the foreseeable future.

Better news is that the Americans baulked at agreement on taxing rights, or changing the rules about where taxes are booked. This would shift taxes to markets in big countries where digital services are sold, not a small country like Ireland where the services originate and multinational companies are based. Having survived Russian roulette on corporation tax, a State living hand to mouth acquired an invincibility complex. It is the economics of joyriding.

There is of course no market for political realism now. Since the turning point of the water charges debacle subsequently crystallised in Labour’s annihilation, and a big electoral setback for Fine Gael in 2016, the political centre has competed with the left, on essentially its terms. Unsurprisingly it has lost ever more convincingly subsequently. Public spending on a gargantuan scale did nothing politically for the Government parties in the ace of the toxicity of the housing crisis. Refusal to recall — let alone restate — the lesson of the last crash, that spending must be based on sustainable sources of tax, have led us to this summer’s stupor. There has been a rude awakening and the blame game about who knew what and when about our lack of preparedness on energy is set to start in an Oireachtas committee today.

In the Irish mind, the taxpayer who should not have to pay more, is separate from a government who must pay for everything. Good causes, and some questionable ones, are never asked hard questions about how their demands are to be met. Now, the Government has run out of road on spending to keep up with expectation. Its internal cohesion will be severely tested.

We are on the brink of crisis now in a left leaning country, demanding ever more public spending based on addiction to the profits of global corporations. That’s the end of socialism Irish-style, as pantomime. Let the booing and hissing begin.