What the British budget tells us about Irish politics

It’s midterm break on Kildare Street, but across the water the government of prime minister Andy Burnham faces a big test with its first budget on Wednesday. Nothing tells you as much about an administration as its budget does, but how it plays out tells you a lot about the broader politics as well. That’s as true in the UK as it is in Ireland. But the British budget also tells us a few things about Irish politics.

As Wednesday is likely to make clear, the primary opposition voice to Burnham’s Labour government is once again the Conservative Party. That doesn’t mean that the UK is reverting to a two-party landscape; it remains (like here) a multiparty system, though (unlike here) with an electoral system wholly unsuited to that reality. However, the heyday of arch-disrupter Nigel Farage has passed, and the central arguments about politics are once again dominated by Labour and the Tories. These are the eternal questions of the size of the state – how much it should do, how much it should tax to finance that, and the management of the economy that produces that taxation.

It’s not true to say nothing else matters in politics – culture does, and so do culture-adjacent issues like immigration – but usually these distributional and economic issues matter more than everything else. As British politics calms down following a period of unprecedented volatility and change, Tory leader Kemi Badenoch seems to have intuited that her party’s route to relevance is through its traditional strengths on the economy. So she has promised big cuts to welfare spending in order to finance tax cuts, a smaller state and less regulation on business. This also suits Burnham, promising the opposite, and clarifying the dividing lines of British politics. In the absence of excitement (well, you know) in Leinster House next week, watch it play out in Westminster.

Over here, of course, it’s quite different. Everyone is in favour of expanding the size of the state – the only arguments are about how much, and how quickly.

We have recently seen the Government express its priorities and values through a budget that promised to expand public spending (20 per cent of the package was made up by tax reductions) by €8.5 billion, or 6 per cent, in Europe’s fastest growing economy.

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Despite the almost universal warnings of economists that public spending is increasing too rapidly and that potentially temporary tax revenues are being used to establish permanent new spending commitments, the predominant political criticism of the budget was that it did not spend enough money. Spend more. Quicker. Everywhere.

Actually, the boom in corporation tax revenues in the last decade has already facilitated a rapid expansion in the size and expense of the State. Look at the numbers. Total expenditure (including everything the Government spends on) has more than doubled in the last decade, from €68 billion in 2016 to more than €140 billion this year. Numbers employed by the public sector have gone from more than 300,000 to more than 440,000, with the pay bill almost doubling from €17 billion to €34 billion, though it’s important to note the population has increased by nearly 800,000, or one sixth, in that period.

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This expansion of the State has been paid for by economic growth generally, but especially by corporation tax receipts, which have increased from about €7.5 billion in 2016 to probably €35-36 billion this year.

The bust-boom-bust-boom recent history has meant that Ireland hasn’t really had any sustained experience of the sort of political and economic trade-offs that are usual for governments, and which you’ll see in action next week in the UK. The Fianna Fáil and Fine Gael-led semi-permanent recession of the 1970s and 1980s gave way to the Bertie Boom. That, alas, was followed by the Bertie Bust. And now we have the second boom.

The usual trade-offs – less tax equals less spending; more spending requires more tax – haven’t applied in the past, and still don’t. Instead, in the booms we have lower taxes and higher spending, and in the busts we had higher taxes and lower spending. So booms got boomier and busts got bustier.

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You know what I’m going to say next: sooner or later the normal gravitational forces of political economy will assert themselves. It would be very, very, very unusual for our current good fortune of constantly, spectacularly increasing corporation tax revenues to continue indefinitely. Yes, people have been warning about this for years and it hasn’t happened yet: this is not a good reason to ignore the warnings now. At the end of the story of the boy who cried wolf, the bloody wolf turns up. And when normality reasserts itself, our politics will have to accommodate itself to that.

How that looks is hard to predict; it depends on how it is managed by the government of the day. That in turn depends on how prepared it is.

One thing that would help is a standing review of public expenditure that would systematically look at areas of government spending and ask: what is the justification for this? Do we need to do it? It should question the premise that every budget in the public sector can only go up – that this year’s budget is comprised of last year’s budget plus whatever increase we can wheedle out of the system.

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Jack Chambers, the Minister for Public Expenditure, announced something along these lines in his recent budget. The last spending review was in 2011. His department says terms of reference are being drawn up. Let’s see if it has the resources and teeth it needs to be effective. One suggestion for it: maybe it should examine the power of state-funded NGOs to spend taxpayers’ money on mad advertising campaigns.