The 2022 Budget is now history. The background details remain to be coloured in.
The real insight it provided is the extent of our dependence – and the absence of a national Business Model – for an economy heading into inflationary headwinds. It’s deeply concerning.
There will be announcements of spending to catch the eye – on houses, hospitals. There will be speeches about plans for ‘greening’ of the Irish(!) economy. There will also be the usual ‘argy-bargy’ of ‘Leaders’ Dáil questions.
Smoke and mirrors – all of it.
The Budget is no longer a formal expression of a sovereign government’s mandate to address the welfare of the people and be a catalyst for developing their capabilities. A national Budget should be a template for Practical Patriotism. Budget 2022 is not even close.
The reality is that budgetary measures in Ireland are now shaped by decisions taken elsewhere. The change in Ireland’s signature 12.5% Corporate Tax (CT) rate, which was once a red line in the sand, was impelled by the U.S Congress and the boardrooms of multinational companies. This was cheered on by larger European economies, notably France and its satellites, long irritated by Ireland’s success in attracting multinational companies.
It should be said that an economic strategy based on a highly competitive CT rate was never sustainable over the longer term. In 2008, against the backdrop of the Lisbon Treaty with its solemn assurances of Ireland’s autonomy in matters of Corporate Tax (as well as respect for Life, the Family, Education and military neutrality!), I pointed out that there were compelling grounds for believing that Ireland’s 12.5% CT rate would be ‘harmonised out of existence’ by ‘real politic’ and that larger countries had a vested interest in finding a way around Ireland’s Lisbon veto.
In 2016, the Financial Time’s Wolfgang Munchau pointed out that Ireland’s Business Model was broken-backed. CT rates pitched towards footloose corporate behemoths did provide the fiscal largesse to governments to indulge in auction politics – but at the cost of increasing our vulnerability as a small open economy and our dependence on their corporate agenda. We even attempted to hand back €15 billion to Google; to Google! “No, no, have another. Sure, it’s my round”.
Our CT-tethered economy did very well in the short-term, but it was always vulnerable over the medium-term. It should have been critiqued and re-engineered away from a dual ‘two- speed’ economy. We used to be good at that. But it wasn’t. Instead, in the run-up to this year’s Budget, our hand was forced by larger and more powerful interests. This ‘harmonization’ will cost the Exchequer upwards of €2 billion a year. More importantly, it will lead to significant shifts in global locational advantage. It has suffocated pretty well the only policy instrument remaining to Ireland. And yet mainstream lauded the government for its ‘success’ in tinkering with the final draft of the OECD’s new regime. Look, the pressures were immense but you have to ask: what use was the solemn’n’binding Lisbon Protocol – and what did the Budget tell us about a new national Business Model. We don’t have one, that’s what.
It wasn’t just the eclipse of a strategy based on CT. The development and exploitation of Ireland’s natural energy resources have now been subsumed in the EU Commission’s ‘Green’ Agenda. This has descended like a cloud on Irish society in the form of a highly regressive Carbon Tax that further increases energy costs to Irish families and businesses because of global factors.
Our scope to forge a monetary and fiscal policy aligned to the needs and capabilities of the Irish economy has long since been ceded to Europe. Our CT strategy and energy policies have now gone the same way. With the re-imposition of the Stability and Growth Pact in 2022/3, we are left with rising interest rates and massive debt/borrowing commitments from decisions, some of them taken with little or no regard to the Irish economy and society.
In short, Irelands ‘Business Model’ is now decimated and we don’t have a robust alternative. The aspirational National Development Plan is, in no sense of the word, an alternative. Neither are the albeit laudable initiatives proposed under the EU’s Pandemic Fund. The Fund started as a sensible Keynesian initiative to offset the recessionary impulses of the Pandemic. It has morphed into a mechanism that recycles Ireland’s contribution, including EU borrowing for which we are on the hook. However, with this kicker, it is now an instrument for imposing centralised control over national economic strategies and cultural values. There is another name for it and, regardless of domestic politics, the Polish Foreign Minister was surely right in highlighting the profoundly anti-democratic nature of Eu governance.
So, the 2022 Budget was really a miscellaneous set of ‘measures’ funded by stronger, multinational-led growth that ignited unexpected and fortuitous corporate tax receipts in the second half of the year. This created the ‘fiscal space’ for the government to finance allowances and tax expenditures. These will, however, be largely swallowed up by powerful and accelerating inflation pressures. These pressures are already feeding into the costs of construction, homes’ affordability, and, more generally, eroding living standards.
In the aftermath of Budget 2022 and facing global headwinds, Ireland remains beset by problems. The long-tailed effects of Covid-19 are pressuring our healthcare staff affected by record waiting lists and an adversarial political culture. There is an ongoing exit of nursing staff, a Consultant contract that makes no sense within an untenable Slaintecare model, and a compelling need for public and private sector investment in medical research. Added to that we have a continuing Housing crisis, at the heart of which is a structural deficit in the supply of new homes. This is now exacerbated by inflation and a planning process that sometimes seems designed to push people out of rural communities and towns and into high rise apartments that serve the interests of (overseas) institutional investors, rather than those of a generation scarred by successive crises and failed by a breathtakingly awful politics.
In summary: