The most anticipated – and certainly most leaked – budget of recent years will be delivered on Tuesday by Minister for Finance Jack Chambers and Minister for Public Expenditure Paschal Donohoe. Two things are abundantly clear already: the two men will announce a series of giveaways, and it will be the prelude to a general election, whenever it comes. But will you end up with more in your pocket? Is it all about the general election? And will it work?
Money in your pocket
Most people will see substantial and tangible benefits from a range of budget measures that will leave them with cash gains running into hundreds and, for others, thousands of euro. Two weeks ago, Chambers said average workers would gain about €1,000 each from the budget; many will get more than that.
Changes to the tax bands and the rate of universal social charge, allied to the one-off (for the third budget in a row) payments that will be delivered before Christmas will make the giveaway elements of the budget even bigger than last year. Back then, Government politicians reckoned that the double payment of child benefit really made an impact with middle-ground, middle-income families (and voters) – so this year, there’ll be a double-double payment, with two double-payments expected before Christmas.
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For a family with three children, that’s a cash amount of nearly €1,700. You can throw in the expected energy credits, and the tax changes on top of that. Some will also benefit from free schoolbooks and the extension of free public transport for children. Pensioners and those on fixed welfare payments are expected to see a weekly increase of €12.
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So, yes: the Government is going to spend billions of euro boosting people’s incomes, and yes, you will feel it.
Are they trying to buy my vote?
Duh, of course they are. In all the budget analysis, there is perhaps a danger of overthinking all this. There are two big facts which are making the weather for this budget: 1. the Government has a massive surplus – ie, lots of spare cash, and 2. there’s an election coming up. What did you think was going to happen?
This is the dynamic that asserted itself over the weekend during crunch meetings between the two budget Ministers and the Coalition party leaders. Chambers and Donohoe insisted that the Government protect its large surplus; the party leaders weren’t against that, but with a €9 billion or €10 billion surplus, they wanted a few hundred million for pre-election giveaways. So the package of once-off measures, previously €1.2 billion, then €1.5 billion, grew on Sunday to €2 billion.
Economists, including the Government’s own Fiscal Advisory Council, have repeatedly warned of the dangers of stoking inflation by using transient revenues to fuel a spending splurge. They’re right. But budgets are about politics, not just economics. And sitting on a seemingly ever-growing surplus while voters feel the pinch from increases in the cost of living and while public services are straining to deal with a rising population and ever-growing demand is just not feasible.
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So if they’re trying to buy my vote, why not a bigger bonanza? After all, they can afford it. This goes to the heart of not just the political message of the budget, which will – like the re-election campaigns of the Government parties – be some iteration of “a lot done, more to do”, but to their entire self-image. Yes, the Government parties want to use the budget for political advantage – but they want to do so as prudently as possible. They may want to buy your vote, but they don’t want to overpay for it.
Will it work?
If there was a way of guaranteeing the outcome of an election by using a pre-election budget, then few governments would ever lose office. So there is no certain answer. What we can say is that governments which have to do tough, contractionary budgets are nearly always unpopular. The two recent budgets have insulated the Coalition from the cost-of-living crisis that has seen many other governments walloped. So giving away lots of cash is good politics – but it has to be combined with a strong and coherent political narrative. As the parties have jockeyed with each other in recent weeks to claim credit for the forthcoming giveaways, the Coalition has looked anything but coherent.
Finally, put all this in perspective: exactly how much money are we talking about?
It’s easy to lose any sense of what the vast sums actually mean on budget day. People will jump to see the impact of budget changes on their own finances – but the millions and the billions often seem remote and meaningless.
It costs – give or take – about €100 billion to run the country this year. (Yes – billion with a B; ie, a thousand million.) Public pay and pensions will cost somewhere not far under €30 billion, healthcare €26-odd billion, social welfare another €25 billion-odd. Education is €14 billion or so. These are rough figures, but you get the idea. There’ll be rows over €10 million or €20 million tomorrow: we get obsessed about a relatively small proportion of the overall costs of running the State.
