Opinion: The main reason for the enormous emphasis on budgets in Ireland is unfortunately political rather than economic
Perhaps the most memorable piece of wisdom I have found on fiscal policy is that you should have interesting plans and boring Budgets. In Ireland, of course, we do precisely the opposite. Irish officialdom became disillusioned with economic planning in the early 1970s, concluding that the world was too volatile to make accurate forecasts. This missed the entire point of the exercise: Albert Winsemius, chief advisor to Singapore throughout its economic miracle, observed that the purpose of planning is to pick a direction. The targets themselves can be revised from the very first day.
The main reason for the enormous emphasis on budgets in Ireland is, unfortunately, political rather than economic. Budget day is a major media event, with weeks of speculation and analysis around it. The major downside, as international critics and former ministers have observed, is that the process bypasses any real parliamentary scrutiny. The decisions have all been made before the Dáil has any input. Particularly sensitive measures (most notably decentralisation) have even been introduced without any input from Cabinet.
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From RTÉ Radio 1's Today with Claire Byrne, is a giveaway election-friendly budget on the way?
Much of the public discourse invariably focuses on whether the Minister for Finance and Minister for Public Expenditure have delivered a 'good' or 'bad' budget. The key criterion is almost invariably the rate of expenditure increase, which can be perceived as good or bad depending on where you are sitting. A former head of the Department of Finance reflected that the media generally credit ministers with generous spending increases and chalk up fiscal rectitude as a win for the officials. In reality, their influence fluctuates far less than is commonly believed.
One of the conclusions of my history of the Department of Finance (available in regrettably few good bookshops) is that the minister was often surprisingly isolated. Finance had far more control over other departments than they did over it or each other. But when it came to spending money, there was only one Minister whose reputation rested on sobriety. The rest had large political and reputational incentives to push for as much as they could get. The job of the Finance Minister, then, was to resist pressure from everyone else in Government. An important benefit of creating a separate Department of Public Expenditure and Reform is that it at least diffuses the responsibility.
Unfortunately, there is little sign that Government has been able to control spending. As the Fiscal Advisory Council has observed, it has consistently breached its own commitment to keep expenditure growth below 5%. As everyone involved in the process is fully aware, the reason is again political rather than economic: there is an election coming and the electorate wants to see action to improve its living standards. Politicians rationalise what they know to be excessive spending on the basis that the opposition would spend more. The opposition validates this belief by endlessly calling for more spending, and on it goes.
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From RTÉ Radio 1's Morning Ireland, the Irish Fiscal Advisory Council's Seamus Coffey warns Government about needless pressure to the economy in Budget 2025
What is most remarkable, though, is our dogged faith that more current spending will make things easier. If you have slack in an economy (people out of work or underemployed) then the Government boosting demand makes perfect sense. Giving people more money will encourage them to spend and create employment. As we all know, however, the economy is running at full tilt, with more people at work than ever before. Throwing more fuel on the fire will just drive up wages and rents.
Charlie Haughey had many faults, but the man could turn a phrase. While forever associated his infamous 'living away beyond our means' address in 1980, he delivered a much more insightful observation as Minister for Finance in 1969. ‘An increase in the pay packet may look attractive at the time. But if it is in fact greater than can be afforded in the over all, then inflation like a thief in the night steals away the benefit it brought and the housewife finds that, in some way she cannot understand, she is no better off, and often worse off, than before.’
What we are experiencing now is the complete opposite of a recession: roaring demand running into limited supply. The shortage of housing and workers pushes up prices. More Government spending will just make the situation worse, especially if it is untargeted. The solution, then, is to boost supply as much as possible. This is best done during a recession with saved money, which is a lesson we resolutely refuse to learn.
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From RTÉ Six One News, interview with Minister for Finance Jack Chambers
But by making commitments now we can at least begin the process. Identifying the major supply bottlenecks is all too easy: just look for where Irish prices are abnormally high compared to our neighbours. The potentially biggest win is energy: we consistently pay some of the highest electricity prices in Europe. Historically, this was understandable for an island with tiny fossil fuel reserves, but it can now be fixed relatively easily with renewables.
This is a genuinely historic opportunity for Ireland, and one that our grandparents could only have dreamed of. It is hard to fathom why we continue to entertain opposition to measures that will simultaneously boost living standards, make us more economically competitive, help meet our emissions targets, and make us more geopolitically secure.
READ: A history of Irish budgets
Another cost bottleneck is insurance, which is relatively easily fixed by stopping the huge compensation payouts that are out of all kilter with our neighbours. This would create no additional demand, but would help alleviate costs for businesses and consumers throughout the state (assuming that we have the sense to make sure the insurance companies pass on the savings).
Ireland is a rich country, but as we all know is also an eye-wateringly expensive one. Some of this is unavoidable, but we have real opportunities to permanently address some of the causes. This would have a far more lasting and beneficial impact on consumers and firms than just another giveaway budget. The money the state saves will be far more welcome when the tide goes back out, as it invariably does.
Dr Ciarán Casey is the author of The Irish Department of Finance1959-99 (IPA)
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The views expressed here are those of the author and do not represent or reflect the views of RTÉ
