Sometimes, you need to step back and take stock. 

During his time in the Department of Finance, the late Brian Lenihan delivered a string of budgets that sucked billions of euro out of the economy. As the global financial crisis triggered a banking and sovereign debt crisis in Ireland, Lenihan taxed and cut until there was nowhere left to go. 

Thirteen years ago, he announced an austerity budget that amounted to €6 billion. Even during those crisis years, it was a staggering sum of money to withdraw from an economy. No one was spared. 

Last week, Michael McGrath became the first Fianna Fáil finance minister since Lenihan to deliver a budget. Buoyed by booming corporation tax receipts (despite the slight dip in the last two months), McGrath, along with Fine Gael’s Paschal Donohoe, were able to unveil a €14 billion budgetary package – and still record a surplus. And bear in mind, this was on top of an €11 billion package last year.  

The turnaround is utterly remarkable. We know much of the money that funded the fiscal largesse is not guaranteed into the future. That is why our political and economic classes talk of windfall corporation tax receipts, and why the two budgetary ministers are so clear to distinguish between core and non-core spending. 

It is also why they are putting in place new funds to future-proof infrastructure projects and the wider economy, a safety net for the days when corporation tax receipts will not be so freely falling from the heavens. 

Managing inflation

With business and the general public facing increasing costs and rising inflation, Budget 2024 sought to deliver something to everyone, from renters to landlords to taxpayers. The film industry got something. So too did angel investors. Social welfare payments were hiked. Businesses will get a one-off payment next year through a discount off their commercial rates to help them deal with inflation. The list goes on. And on. 

As Michael McGrath put it to me last week: “I think it will take time for people to absorb all of the different measures that we set out in the budget. And in many respects, it’s only when the payments start to be made, or the electricity credits start to be applied, that it will have real meaning, and people will be able to relate it back to their own lives.”  

This was a point echoed by Paschal Donohoe also when he sat down with me the day after the budget was delivered. In Donohoe’s view, this budget sought to deal with the current cost pressures, while also safeguarding the future. 

Inflation was clearly on his mind during the negotiations for Budget 2024. “I see the social and politically disruptive effects of inflation being an exceptional challenge, and we underestimate at our peril what declining living standards due to a rapid rise in prices can do to a society, to cohesion, and to a sense of equality in a country,” he said.

Stephen summed up the theme of the budget succinctly. “Budgets 21, 22, and 23 were framed by a need to cope with the effects of disease and conflict. Budget 24 is framed by the need to continue the incremental increase in the state’s spending in an environment of falling inflation, falling consumer demand, increasing volatility around the world, and more corporation taxes than the Government knows what to do with,” he wrote.

The coalition parties are trying to reframe the political (and economic) narrative away from health and housing and towards the coalition’s stewardship of the economy.

It was also notable that the two themes that have dominated political discourse in recent years – housing and health – were not the dominant themes in the budget. 

The budget for health was largely unchanged, despite, or perhaps because of, its chronic inability to come in on budget. This was something I put to Donohoe last week in his role as public expenditure minister. 

“If we were to meet all of the funding needs that every part of the State has, you know we’d be increasing government expenditure by 16 per cent a year, not by 6 per cent,” he replied. 

“The health sector now has €22.5 billion of funding – a very significant amount of money. They have received additional funding versus Budget Day 2023, and I want to continue to work with them, but we only have so much money that we can allocate to each part of the State, no matter how important they are.”

Housing was not a big theme either, even though capital funding being provided for housing in 2024 will hit a record €5 billion. The issue, however, is not money. It is capacity, and the lack of that capacity is impacting our ability to build the homes that are so badly needed. 

Interestingly, however, mid-way through his own press release accompanying the budget, housing minister Darragh O’Brien said he would be seeking Cabinet approval in the coming weeks to capitalise the Land Development Agency to the tune of €6 billion and increase the Housing Finance Agency’s borrowing limit from €10 billion to €12 billion as part of Ireland’s long-term investment plans.

Why such a significant decision was not announced in the budget is unclear, and it seems likely that O’Brien will be hoping to tap up Isif for money for the Land Development Agency. But again, it shows the financial firepower of the state at the present.

Given that an election beckons, it seems to me that the coalition parties are trying to reframe the political (and economic) narrative away from health and housing and towards the coalition’s stewardship of the economy and its ability to navigate multiple crises such as Covid and cost of living.

Arguably, it represents their best chances of electoral success. It is hard to win on a platform of housing when the housing crisis persists, or on health when waiting lists continue to spark outrage.

Instead, the coalition is targeting a mix of prudence and populism. It delivered something to everyone, while still holding something back in reserve. It can campaign as a government that navigated a pandemic, and then delivered massive funds to industry and taxpayers to help ease them through the cost of living crisis, rising inflation, and spiralling interest rates.

I wrote last week about Ireland’s expectation paradigm. The money is there but it does not seem to be translating. As I put it: “In addition, the country is infrastructurally poor. People are not feeling the wealth of the state’s balance sheet. There is a disconnect between the numbers and reality. Wages might be rising, but not enough to deal with inflation.”

The budget seeks to deal with that. It is political, an attempt to change the narrative and to hold back the Sinn Féin tide, a tide that has been swelling over health and housing.

*****

Elsewhere last week, I caught up with Robert Brophy. As CFO for World Rugby, Brophy was instrumental in building the Rugby World Cup and in leading the financial development of the game. He is now taking that skillset to a senior role with fast-growing Interpath Advisory. He talked to me about the business of sport, and his time with World Rugby.

In this column last week, I wrote about the battle between Revenue and the examiner of Mac Interiors to write down warehoused debt. The battle reached its conclusion last week, when the Revenue won and the company fell into liquidation. Francesca had the story.  

Waterford software developer Nearform made a significant acquisition last week and it is on the lookout for more. Founder Cian Ó Maidín explained to Tom how the deal to acquire Formidable came together and how it is poised for even more rapid growth.

When do family businesses bring in law firms? Usually when it’s too late. On the final instalment of our Family Matters podcast series, two partners at Whitney Moore, the law firm, talked to Alison about how family-run businesses can swerve potholes.