While we have all been focusing endlessly on the latest Truth Social post from Donald Trump, the Coalition has been having backroom rows about its budget plans. Serious ones. A key document which sets the framework for the budget – the Summer Economic Statement – will be published next Tuesday. And alongside it will be the Government’s updated investment spending plans in the revised National Development Plan (NDP).
The game, in other words, is on. When you see the Independents who support the Government being filmed for the RTÉ News going to talk to senior Ministers, you realise there is some good news coming and kudos to be sought for a new road or rail upgrade. But there will be tough calls, too. And it is no exaggeration to say that Tuesday will be a key moment for the Government as it signals a change of budgetary direction.
The Coalition is going to go all in on State investment – energy, water and housing in particular. The catch is that to afford this, it is going to have to keep much tighter control on day-to-day spending and also end the once-off giveaways which have been a feature of the last few budgets. It will sell the message of restraint now allowing for investment for the future. Bread tomorrow is never an easy strategy to sell to voters – but that is what the Coalition is going to try to do.
There will still be some extra cash in the budget for State services and welfare and – probably – a modest tax package. Talk of a “tough budget” is nonsense – look at France where spending cuts, tax hikes and cutting two bank holidays were put on the table this week. But Irish voters have become accustomed to their budget day goodies – and there is going to be one heck of a political row when the penny drops that they are not going to feature this October.
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Given the risks ahead and the State’s reliance on tax payments from a few multinationals, the brakes do need to be put on. Spending has soared and departmental targets set in the budget are regularly exceeded. Central Bank researchers estimated in June that permanent Government spending has risen by a hefty 37 per cent since 2021. Had the “rule” to limit State spending growth to 5 per cent been adhered to, the increase would have been 16 per cent. There has simply been little culture of spending control and reinstating it is not going to be easy at a time when demands on public services are growing.
Meanwhile, “once-off payments” – repeated so often now that the term is an offence to the English language – have a serious budget price, costing more than €2 billion in the last package, which was a reduction on earlier years. The most expensive elements have been the universal payments to all households in areas like energy credits in the annual cost-of-living packages. Budget Ministers Paschal Donohoe and Jack Chambers have been saying there will be no cost-of-living package this year; for now, at least, it seems that the rest of the Cabinet are signed up to this.
Ministers will spot the political dangers. Households have started to get used to the annual boost and will feel a bit less well-off. The Opposition will scream. But continuing to throw out the universal once-off payments would be a poor use of money, benefiting many for whom the cash is nice, but not necessary. Better to use what funds are available to build up permanent supports and improved services, focused on those who need them.
The cost of living is high, for sure, but it is a farce to portray all households as “hard-pressed”, or everyone in the middle ground as “squeezed”. Effective policy should help those who genuinely are – like many younger families – through better services in areas like childcare and health, rather than repeating the annual cash giveaways.
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Meanwhile, with the sums tightening considerably, the Coalition’s “solemn promise” – as Simon Harris put it – to cut the hospitality VAT rate back to 9 per cent is looking like a “repent at leisure” moment. Even if this is restricted just to food businesses, it will cost €550 million a year. When other demands are being turned down and “restraint” is the message, this is not going to be an easy sell for the Coalition.
The all-in bet on State investment is driven by a view in Cabinet that housing, water and energy provision have all reached a crisis point – an argument being hammered home to them by big investors. Tariffs and Trump are the most discussed threat to future investment – and do indeed pose fundamental questions. But if Ireland does not put forward a plan to develop infrastructure, then investment is going to drift away, whatever happens in the White House.
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This will be mightily expensive. As well as controlling spending elsewhere, the Government will have to run down its annual budget surplus – and there are some risks here. However, it is still legally obliged – barring a downturn – to keep putting cash away in two funds designed to support future spending and investment.
As well as finding the cash, the Coalition has to show it can actually deliver big projects – and more housing – an area where the previous administration performed poorly. And it needs to heed the warnings from the Central Bank and the Fiscal Council that if the State keeps pumping out cash across the board, then it will just add fuel to an economy already at full capacity, making it even harder to deliver on the infrastructure programme.
Having had a stumbling and slow start, the Government is about to roll the dice for the rest of its term. Its more serious players will know that threats from across the Atlantic could damage the favourable economic position and budget outlook, and might require mid-flight adjustments in these plans. There will be some reassurance that there is €30 billion in cash and liquid assets down the back of the State couch, but also a realisation that if the trends change fundamentally this only goes so far.
But sitting and doing nothing does not look like a clever strategy. Investment is the right direction for the Government to take. It will all come down to delivery. And to a bit of luck that Trump’s policies, while inevitably damaging, do not upend things completely.
