Gerard Howlin: Weaning ourselves off economic methadone will be very difficult
Pay Place Basis And Provision Being Any Sustainable For Plan Of Planned Is Is Sight, Permanently For But In Not Health What On Especially, Any Put Deliberately To In Is What Housing Increased It, In Is Too In A
IT is only now, as departments unveil the detail of their allocations, and as headline announcements yesterday are absorbed, that the impact of the budget unfurls. On TV and radio shows where the finance and public expenditure ministers are questioned in depth, as special interests react and, critically, as TDs feel the response on the ground locally, this budget will pass muster — or run into trouble. It is the days after that are always crucial.
An amusing aside on Leo Varadkar is that the oompa-loompas in his chocolate factory were busily publicising the content of the budget before they were announced in the Dáil. I vividly remember the budgetary omerta of yesteryear, when such things could only be discreetly leaked, but never brazenly publicised. Once upon a time, it was so grave an offence that then minister of state at the Department of Finance, Phil Hogan, resigned because his office inadvertently faxed (remember what a fax was?) budget details to the media. In 1947 in the UK, then chancellor of the exchequer Hugh Dalton resigned because he gave sensitive budget information to a newspaper which was on the streets 20 minutes before he spoke. Budgetary omerta has been flagrantly breached for years. It is now buried.
Another cultural totem yesterday is that a Government, whose Fine Gael members have been cruelly caricatured as young Tories, delivered a budget Tony Benn could only have dreamt of. Michael McGrath made a name for prudence on an opposition Fianna Fáil front bench from whom extracting feckless promises was seldom difficult. But that was then.
Yesterday, Mr Donohoe and Mr McGrath engorged the State on a scale comparable with the post-war Attlee government in the UK, in which Dalton was chancellor.
This astronomical splurge in spending, all of which is borrowed money, will get us through the winter. The strategy is based on a single bet and that is being able to reduce our borrowing requirement significantly, soon. This budget is a programme of economic methadone. It staves off the worst. It keeps things stable after a fashion. But the supply is strictly limited. That is not in the main a criticism of what was done, but it is a warning about the difficulty of weaning off.
The newly emergent groupthink that an inexhaustible source of State borrowing at close to zero interest rates is available indefinitely, is as dangerous as the last intellectual huddle to afflict economics in this country. Then, and it is only a decade ago, the groupthink was that astronomical levels of private and corporate debt was a stable ballast for the country. In fact, it sank it.
It is a simple fact, and no economics degree is required to understand it, whoever owns your debt owns you. For now, that is effectively the ECB. Eventually our debt will be rolled out into the open market, and that is a jungle. Pious hope about being in the pack now, unlike in the noughties when we were an outlier, is just that. The recurring thinness of thought that characterises small, intertwined circles in this country is worrying.
What gives ground for some mild optimism is that the budget is based on a no-deal Brexit and no general availability of a vaccine for Covid-19 in 2021. While pessimistic assumptions, they are practical provisions. What is of much greater concern is the politics of ever moving on from what has been provided for over the past months, and into the coming year.
That move-on, provided there is a generally available vaccine in 2022, will — in the second half of the life of this Government — presumably be led by a taoiseach Varadkar, when the subsequent general election is looming into sight. Extracting wisdom teeth without an anaesthetic will be easier.
And that’s just the politics.
The ultimate economics are worse. When some of what is now billed as temporary, is only partially and then painfully withdrawn, how will a permanently larger State be paid for from a narrow tax base already unequal to the task? Covid-19, like every outgoing tide, has exposed those swimming naked. However, that is an unexpected colossal event. What is being deliberately planned for and put in place is permanently increased provision in health, especially, but in housing too.
What is not in sight is any plan to pay for any of it, on a sustainable basis. It may be rude to debunk the new groupthink, but borrowing will not pay for permanently increased current spending. Only tax will.
Increased employment and economic activity is one pillar of delivering more tax and, if recovery comes, it is predicted to be swift. But this Government paid a 2% across-the-board increase to public servants on October 1.
Yesterday, it confirmed its abandonment of a decade-old policy to increase the eligibility for the old-age pension from 66 years to 67. Each of those feckless decisions will cost over €1bn over the life of this Government. That means a legacy of a State costing €2bn more to run, every year, before any additional expenditure is provided for with borrowed money.
The promise of a commission on pensions, a decade after the parties in Government arrived, and then settled on a policy, demonstrates just how difficult the politics of reducing the size of the State always is. That commission joins the third delay on, and reconsideration of, property tax. Usually, alternative budgets from the opposition are also-rans.
This year, I paid more attention to Sinn Féin’s offering. Pearse Doherty promises to take €720m off multinationals. Never mind that that would not be nearly enough to plug the hole, even in a positive future scenario. Never mind either that multinationals pay 79% of all corporation tax. It is the principle that counts. The principle in question is that by the time we have another election, on present trends, the economic centre cannot hold.
We are now an economic gerontocracy, organised to prefer a property-owning, pensioned older population at the expense of younger people. Much was said about the young yesterday in the Dáil, and a lot of the temporary help will assist this winter — but the underlying policy trends are corrosive of the interests of anyone under 30, and perhaps many under 40 too.
That is not new, but now it is underlined. It is not planned, but it is an inevitable long-term consequence of what are, because of their scale, massively consequential long-term decisions.
Yesterday was a war budget, intended to get us through an unprecedented emergency. Its ultimate effect will be intergenerational. It has by accident, in the hands of politicians I would have assumed would be appalled by what they are doing, delivered the most significant planned economic intervention in the history of the State. It will leave behind a much larger State.
It will in consequence create a politics that will be shaped by the questions of how we deal with what we are about to get, having wished it on ourselves.