So what happened to those tax cuts that Fine Gael was looking for?
For a good week or more at the end of May, politics was consumed by the story of Fine Gael’s push for tax cuts. An article in the Irish Independent by three Fine Gael junior Ministers — with foreknowledge on the part of the Taoiseach but not, apparently, the Minister for Public Expenditure — calling for tax cuts for middle-income families in the budget kicked off a political storm within the Government.
Fianna Fáil Minister for Finance Michael McGrath said he would not be “bullied” by Fine Gael over budgetary proposals. Tánaiste Micheál Martin said it was “not helpful” and that it “undermines the process” of agreeing on the budget.
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Fianna Fáil Senator Malcolm Byrne accused some Fine Gael Ministers of “now behaving like People Before Profit”. Senator Lisa Chambers said it was “populist”.
Fine Gael was having none of it. At a Fine Gael parliamentary party meeting, former agriculture minister Michael Creed said the party should not take lectures from “those who crashed the economy and are still on probation”. In an Irish Times interview, Leo Varadkar said that putting more money in the pockets of middle Ireland by reducing taxes was one of the reasons why Fine Gael was in Government.
All good knockabout stuff and it dominated political debate, perhaps securing the identification of Fine Gael with tax cuts in voters’ minds. Fast forward though to today’s Summer Economic Statement, a key economic document which sets the parameters for the October budget, and provision for tax cuts for middle Ireland looks a bit threadbare.
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There will be a budget day package of €6.4 billion, McGrath and his ministerial partner Paschal Donohoe announced, incorporating a tax reduction element of €1.1 billion. The tax component will be just about enough to cover a medium-sized bag of upward adjustments to the credits and bands — but nothing like the big tax giveaway for middle Ireland that Fine Gaelers were dreaming about not so long ago.
In a budget that increases spending by €6.4 billion, a tax package of just over a billion euros does not scream that it’s a huge priority. But the budget will be a lot bigger than the €6.4 billion announced today and everyone knows it. The package of recurring expenditure and tax commitments will almost certainly drift up beyond €6.5 billion on the day. But the big expansion will be along the same lines as last year — in a package of once-off measures such as extra welfare payments, child benefit, energy credits and so on. Last year that amounted to an extra €4 billion on budget day – making it the biggest budget disbursement ever. Something similar is likely this year. So for all the fuss about tax cuts, expanding spending remains very much the focus of the Government’s budgetary strategy.
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In recent weeks, McGrath and Donohoe have fought a fierce rearguard action to limit the tax package and spending increases. Given the massive surpluses that the exchequer is enjoying, the two budget Ministers can claim at least a partial victory — it’s a very big giveaway budget, but it won’t be as big as many wanted. The two men, the essential axis of the Coalition, can continue their claims of prudence. Though nobody will accuse them of being excessively so.
Nonetheless, it still breaks the expenditure rule they imposed on themselves after Covid and for the second year in a row. So to add to the question of what happened to the tax cuts, here’s another two: when is a rule not a rule; and if something is repeated for the second year, can it really claim to be a one-off?
