Two pieces of information published over the last week suggest that the Government will indeed have significant leeway on budget day. First came the exchequer returns for August, showing that corporation and income taxes both remained strong. Then on Friday Irish economic growth figures for the first half of the year indicated that despite all the international uncertainty, the underlying economy continues to grow by around 3 per cent.
Against this backdrop, demands for more exchequer funding continue to grow. Unless there is a breakthrough in talks between Iran and the US, energy costs look set to remain high. As well as petrol and diesel, higher wholesale gas prices are feeding through into pressure on household heating bills, with some rises already announced. Public sector unions are looking for significant pay and income tax concessions. And there is a string of Government promises – and hints – on tax and spending.
Strong public finances are good news. But they put pressure on the Government to spend more and tax less. It remains to be seen how it reacts. It needs a strategy to handle this. Instead it seems intent on making commitments to advance on all fronts at once, which it will be unable to afford.
The only sustainable way to proceed is to try to focus assistance as forensically as possible where it is needed. The Government can try to protect those most seriously affected from the impact of international events, but pretending that it can help people in all cases is a serious mistake.
A piece of – relatively – good news in recent days was the ability of the National Treasury Management Agency (NTMA) to raise new borrowings at a rate of less than 3.5 per cent. This was the highest level for many years – reflecting trends on international bond markets. But it compared well with the interest rates charged to many other countries. This was due to the strong state of the Irish public finances. International confidence in Ireland’s public finances is hugely valuable at a time of upheaval in global bond markets. It is very much worth protecting in October’s budget.