Donohoe warns of ‘faint whiff of 2008 around the place’

By Cillian Sherlock, PA

The Finance Minister has said nobody is more aware than himself of the dangers of repeating the mistakes of the financial crash, as he was warned of a “whiff of 2008” preceding the Budget.

The Central Bank, Irish Fiscal Advisory Council (IFAC), and Economic and Social Research Institute (ESRI) have all raised concerns about the risk of the planned Budget package overheating the economy.

The Summer Economic Statement set out a planned package of €9.4 billion for Budget 2026 – including €7.9 billion in additional public spending and €1.5 billion in the tax package.

During Leaders’ Questions, Labour finance spokesman Ged Nash said: “There is growing concern from commentators and experts that we are in a situation where spending is out of control, and frankly they are right.”

Drawing parallels to the financial crash, Mr Nash said: “There is a certain faint whiff of 2008 around the place.

“The budgetary Oversight Committee has heard warnings from the ESRI, IFAC, and the Central Bank – and indeed me – that you can’t keep spending, cutting taxes, and expecting good outcomes.

“We have a Government that has no net spending rule, a medium term framework published two weeks ago with no spending ceilings, a threadbare National Development Plan published in the summer, an opaque Summer Economic Statement, no transparent way of accounting for existing levels of service, budgets that are – quite frankly – works of fiction as ministers trot into the Dáil at the end of every year looking for billions more to account for overruns.

“And what’s more is the Budget process this year is cloaked in secrecy.”

Mr Nash said there was an “unprecedented” lack of clear answers on spending plans from ministers, adding that “a very serious credibility gap has emerged”.

The Labour TD criticised the Government’s approach to corporation tax, saying ministers were treating it like stamp duty, for which revenues collapsed during the financial crisis.

“Rather than broaden the tax base to make it ready for the future, it looks like they keep hollowing it out, and the door is wide open for a massive VAT cut for hospitality, with yesterday’s National Competitiveness and Productivity Council report showing that there’s been a net expansion in the number of firms in the sector, as well as in employment and earnings.

“In recent years, we’ve had no evidence from the Government on the need for a VAT cut. The case, in truth, it’s thin.

“So instead of widening the tax base, this government is now proceeding to do the opposite, to hollow it out, despite all the warnings.”

Finance Minister Paschal Donohoe said nobody was more aware of the risks of the past than he was.

“It’s a matter that I am aware of every single day in the individual decisions that I make and their accumulation.

“What I would say to the charges that are made regarding the level of risk that is present in our public spending plans at the moment is, firstly, to emphasise the point regarding the scale of budget surplus that we are now running.

“Secondly, to note that by the end of this year, €16 billion will be set aside in the Future Ireland Fund and the Climate Nature Restoration Fund – that figure will rise to €22 billion by next year.”

He added: “Thirdly, to note that when I began my work as Minister for Public Expenditure, debt as a share of national income was in excess of 120 per cent; it is just slightly above 60 per cent – it’s halved.

“So that’s the work that I’ve done, and I’ve devoted much of my life over the last decade to the case of running budget surpluses, I have to say, with not a whole lot of support in this house for doing it, but I’ve done that in anticipation of those risks.”

Mr Donohoe pulled up the Labour website on his mobile phone and said the party was calling for increased spending on early years programmes, public transport, housing, and public sector pay.

“I accept the legitimacy of the cases that you are making with regard to many of them, but I would point out that for those who advocate care in relation to general public spending, they’re always very eager to make the case for specific public spending proposals, sometimes of great value.

“And while I don’t believe you make that mistake, you’re surrounded by many who do.”

Mr Nash said everyone in the Dáil accepts the need to increase public spending in a targeted way, but said the minister had not addressed his criticism on “hollowing out the tax base”.

Mr Donohoe said the tax package in the Budget could not exceed €1.5 billion, which is “roughly approximate” to the income that will be generated through the tax code of the growing economy.