The Treasury Secretary had a major pandemic and steered the economy through a potential disaster with calm and resourcefulness, although it would have been easy to panic and retreat into a defensive stance.
But instead of hitting the big red savings button on his Merrion Street desk, he lavishly spent two years on wage subsidies, tax holidays and generous unemployment benefits, betting that a brighter future lay on the other side of uncertainty.
Now that future has arrived.
With Covid-19 largely behind us, every Exchequer update is better than the last as the recovery continues. Public finances are balanced ahead of time; In fact, May recorded a healthy surplus, beating even the most optimistic fiscal estimates for the year.
So why is Donohoe constantly keen to downplay Ireland’s fiscal performance when, like Gene Kelly, he should be tap-dancing in a summer shower of euro coins?
As soon as his department touts another record monthly tax revenue figure or quarterly growth figure, he throws a bucket of ice water over his own head, as if the good news might overheat him.
Here he was yesterday at the Economic and Social Research Institute’s Budget Conference, which kicks off the choreography ahead of October’s Budget Day.
“The days of cheap finance are going,” he said, referring to the European Central Bank’s confirmation this week that interest rates would rise from July.
Irish government bond yields are expected to be at eight-year highs of almost 2 per cent – okay, not the free money we’ve become accustomed to, but not by much either.
“We will aim for the lowest level of borrowing required to respond to the diverse developments and strains in society and government,” he continued.
“We will of course continue to recognize the cost of living challenge and continue to help, but overall we need to prepare and then deliver a budget that does not by itself contribute to the inflationary pressures that are clearly underway now.”
Sounds bad! You would never know that just a week earlier, the same Treasury Secretary had announced that this year’s tax revenue was up 27 percent on very strong sales tax, personal income tax and corporate income tax receipts.
But even then, Donohoe followed up with a warning of inflation and tighter monetary policy as a challenging backdrop for public finances, notwithstanding the poor health of the domestic economy reflected in tax returns.
It is clear that the minister is anticipating a tsunami of spending calls in the coming months and is desperate to meet expectations given not only the real risks to Ireland’s economic well-being but also the traumatic public memory of economic mismanagement, that of the financial crisis preceded.
To be fair, the indicators are not pointing in a clear direction. The specter of inflation has materialized and is now haunting every sector of the economy, from manufacturing and construction to retail and restaurants. Whether the ECB can banish it back to the underworld remains to be seen and is well beyond Donohoe’s control.
As he pointed out when Nama released its annual report, domestic demand – the best measure of Irish economic growth – slowed in the first quarter as consumers reined in spending to cope with higher prices.
The same inflation also somewhat flatters the state’s tax revenues. When prices and wages rise, so do VAT revenues, people’s incomes and corporate profits. In addition, the year-on-year comparison with the Covid-hit 2021 certainly contains the odd fiscal illusion.
On the other hand, the labor market is possibly the strongest in living memory, wages are improving and both companies and households have ample savings. Additionally, the National Treasury Management Agency (NTMA) has done an impressive job of both pre-funding the state’s spending needs and lowering the cost of debt servicing.
Is it possible that Donohoe is afraid of the ghouls he conjures up in the chilling bedtime stories Fine Gael has been telling for years about Ireland being one of the world’s most indebted nations per capita?
The Fine Gael brand has over the past decade fixed the mess left in its wake by Fianna Fáil in 2011, but there is no need to rehash the lessons of the Great Financial Crisis when we have the much closer and more instructive example of the Covid crisis to learn.
In the face of the shock of the pandemic, Donohoe has been able to act with agility, determination and imagination. The wage-subsidy programs, which funneled €10 billion to ailing companies over two years, have been an inspirational policy — all the more so because they bucked the party’s type of fiscal restraint.
With no crisis to rouse him into action, Donohoe appears to be reverting to type and focusing on the fiscally comfortable task of paying down debt — a necessary but not a sufficient condition for a healthy economy.
October is an opportunity to do the next, not the old.
https://www.independent.ie/business/irish/tax-money-is-rolling-in-like-never-before-so-whats-eating-paschal-donohoe-41741452.html Taxpayers’ money is flowing like never before, so what’s Paschal Donohoe eating?