The unexpected consequence of Paschal Donohoe's departure from Cabinet for the World Bank in Washington DC was Fine Gael leader Simon Harris’s decision to replace him as Minister for Finance.
Economics and Public Affairs Editor David Murphy analyses the potential pitfalls of the move.
Questions about the move
Will Simon Harris be more easily swayed by political pressure than Paschal Donohoe? Will he be more mindful of opinion polls as Fine Gael leader? Will politics clash with his role as guardian of the public finances? These were some of the questions asked as soon as the news broke this week that Mr Harris had become Minister for Finance.
Two-year job
One reason why Mr Donohoe had credibility as Minister for Finance was because he delivered ten budgets in a row. That decade included navigating the crises of Brexit and Covid.
But Mr Harris won’t have the advantage of gaining experience gradually. He will serve as Minister for Finance for exactly two years to the day. He will deliver two budgets. Then on 16 November 2027 he will assume the role of Taoiseach.
On the same day, the finance portfolio will switch to a Fianna Fáil politician. As things stand, that would be Jack Chambers.
The Public Expenditure and Reform portfolio will also rotate to a Fine Gael politician other than Mr Harris because he will be Taoiseach.
Nobody else to blame
There are very few problems in politics which can’t be solved by money.
It was an advantage to have "prudent" Paschal Donohoe in finance. When other Cabinet members looked for more funding, Mr Harris and Taoiseach Micheál Martin had someone else to blame if they had to turn down pleas for additional spending.
Now Mr Harris will have to stand up to other ministers himself.
Minister for Finance is not a part-time job
Simon Harris now has three jobs: Minister for Finance, Tánaiste and Fine Gael leader. It has been common practice for the number two politician in Government to also hold a significant portfolio. But it is highly unusual for it to be finance.
The danger is that if anything goes wrong in the banking sector, insurance industry, eurozone or public finances, it rapidly becomes an enormous task.
If there is a crisis, it is frequently accompanied by political turbulence within parties and coalitions, which Mr Harris will have to manage as well.
The danger is he may become too stretched.
Politicians rarely admit they can’t handle the pressure: instead, poor decisions are made. (Remember the 2008 bank guarantee when the State underwrote the liabilities of the banks, ultimately costing a gross €64 billion. Arguably, there were cheaper ways to do it but the decision was made under stress.)
Runaway spending
The enormous increase in public spending, failure to stick to expenditure ceilings set out on Budget Day and over-reliance on corporation taxes paid by multinationals should be the single biggest concern for Mr Harris.
Most ministers want to spend more money on worthwhile projects such as schools, hospitals and more gardaí. But it will be the job of Simon Harris and Minister for Public Expenditure Jack Chambers to say 'no’.
The Government has increased spending for 2025 by €4.1bn above what was agreed in December of last year. That is spread across departments with Education receiving an additional €580m, Health €302m and Social Protection €265m.
These supplementary estimates are huge considering the total spending increase for 2025 was supposed to be €10.5bn. The additional spending is tantamount to a budget on top of a budget.
Despite promises of more financial discipline, there is little sign of it. This extra expenditure is propped up by volatile tax payments from US multinationals.
Paschal Donohoe predicted that funding, mainly from US tech and pharma companies, will diminish in the coming years. When it does, whoever is in government will face some ugly choices.
Saving instead of spending will be tough
Since 2015, an enormous €167.7bn has been paid in corporation tax to Ireland, according to the Revenue Commissioners and the Department of Finance. The vast bulk of that is from foreign multinationals. It includes about €14bn in back taxes from Apple.
Michael McGrath and Paschal Donohoe set up two long-term savings funds last year to set aside a portion of those huge sums, after an earlier rainy day reserve of €1.5bn was emptied during Covid.
By the end of next year €24bn will be set aside in the two funds, Mr Donohoe said this week. But that is only if the Government continues with its commitments to keep saving.
Economists argue that much more should have been saved. During some budget negotiations, ministers privately grumbled about setting aside billions when their departments had urgent requirements.
A big test for Mr Harris is whether he will be able to continue the discipline of putting a large slice of tax revenue into the funds instead of caving into demands for immediate spending.
Should Simon Harris be Minister for Finance?
Simon Harris has a lot of experience for someone who is not yet 40. He has served as Taoiseach, Tánaiste, Minister for Health, Foreign Affairs and Higher Education. He was also a Minister for State in the Department of Finance.
The real problem is combining finance with his other existing roles.
It might be fine - but it may not be. It is certainly an odd decision and presents risks.
Probably the greatest danger is that Mr Harris fails to curtail the colossal increases in spending which this Coalition is failing to control.
