EDITORIAL: Budget 2018 will be tight

CONSULTATIONS about the likely shape of Budget 2018 have got under way with various interest groups – including business, trade unions, agriculture, tourism, charity and social justice lobbyists – having been given their say, albeit briefly, at the National Economic Dialogue. The third one of these was officially opened by Taoiseach Leo Varadkar, who wants to provide some tax cuts in the budget for his beloved cohort of those who work hard and ‘get up every day,' however the scope for doing so is not huge, given that the so-called fiscal space only has about €500m extra for the government to work with and there are so many demands for it.

Whether or not the Taoiseach is making this pitch as a sop to the electorate in case there is a general election is a moot point because it cannot or won't be a giveaway budget. Prudence has been urged by watchdog bodies such as the Economic and Social Research Institute and the Irish Fiscal Advisory Council and their warnings are best heeded, especially given the uncertainty that Britain's departure from the European Union is causing for this country in particular.

There have been calls from various stakeholders to ‘Brexit-proof' Budget 2018, but it is difficult to do this if you cannot quantify the external challenges involved. Probably the best one can do is to try to imagine the worst case scenario and be prepared as best as you possibly can for it.

However, Social Justice Ireland warned the National Economic Dialogue that ‘Brexit should not paralyse our response to national challenges' and that there should be no nett tax cuts in Budget 2018. Its director, campaigning priest Dr Sean Healy, said that investment must take priority over tax cuts because Ireland is under-investing in key areas such as education, social housing and rural broadband. 

In an unprecedented intervention, the secretary general of the Department of Public Expenditure and Reform, Robert Watt, urged Dr Healy to provide data and not ‘supposition,' as he argued that he should be pointing out the positive aspects of our national recovery. However, the Social Justice Ireland director reminded the senior civil servant that the growth hadn't embraced everybody and that ‘the country is in danger of polarising because it is failing to understand the experience of life that is the reality for an awful lot of people.'

He emphasised that, in order to deliver sustainable and inclusive growth, public investment must be given priority in Budget 2018 and beyond. Dr Healy added that ‘any delay in investment will simply exacerbate the situation' and he demanded a comprehensive multi-annual investment plan to tackle Ireland's infrastructure deficits.

There is a lot of merit in Dr Healy's arguments because our annual budgets tend to be politically motivated, dispensing short-term largesse. The state of our public healthcare and housing services are testimony to a paucity of longer-term strategic planning.

His arguments were backed up by Ibec, the group that represents Irish business. It also urged the government to ‘show ambition at a critical juncture for the Irish economy by substantially increasing State infrastructure spend over the coming years,' as it is key to long-term economic planning and success.

Ibec's CEO Danny McCoy urged the government to reverse its debt reduction strategy of 45% of GDP, which is well below our EU requirements of 60%: ‘Such overly-cautious debt management would result in the sacrifice of much-needed investment throughout the country.'

Interestingly, Ibec and Social Justice Ireland are singing off the same hymn sheet in some respects with the former warning that failure to invest now will leave future generations with larger infrastructure deficits to fill and, ‘as we have seen in other countries in recent times, social problems easily spill over into political uncertainty and polarisation.'  

Agriculture and tourism industry interests want government supports to face down the inevitable challenges posed for them by Brexit and there will, undoubtedly, be many other demands on Minister for Finance Paschal Donohue before he finalises his first budget.