The interview is drawing to a natural conclusion. We have discussed Fine Gael’s management of the economy and explored why it has not resonated during this election campaign. We have picked through the detail of his party’s manifesto, highlighting the main areas of policy clash and contestation between Fine Gael and its opposition rivals.

There has been a discussion about Capital Gains Tax and the property market, as well as an analysis of the varying needs and differing wants of multinationals and the indigenous economy.

Now though, with the end in sight, Paschal Donohoe is careening to a place that not many centrist politicians would dare to thread: Marxist philosophy and the writings of an Italian communist.

“If I may break with precedence and make reference to a Marxist philosopher, Antonio Gramsci, when he talked about how ‘the old is dying but the new cannot be born’. That is now happening with the European economic model,” says Donohoe, who has served as Minister for Finance since June 2017.

Sitting in his spacious, orderly office in the Department of Finance, Donohoe argues that the Irish economy is poised for a period of profound change.

There is, of course, Britain’s departure from the European Union, an exit that changes both Ireland’s trading relationship with its nearest neighbours as well as the European project itself.  But weighing even more heavily upon Donohoe’s mind is the potential disruption to the Irish economic model stemming from the ongoing clamour for global tax reform.

Donohoe tells me he remains confident about Ireland’s capacity to deal with these changes. But his confidence comes with a health warning – “No understanding politician,” he says, “can give guarantees about their manifestos because there are contingencies and risk.”

It is a pointed comment from Donohoe, particularly coming in the midst of an election campaign defined by grandiose promises and populist pledges (some have come from his own party).

But, in the world according to Donohoe, many of those promises are economically unwise, even if they are politically popular.

Donohoe has sought to make economic pragmatism central to this campaign. But it has not resonated, with housing and health overwhelming Fine Gael’s economic achievements. In the face of an unexpected, and unprecedented, swing to Sinn Féin’s brand of socialism, was it the right decision?


This is not the first time I have sat down with Paschal Donohoe in this office. The first was October 2017, days after he had unveiled his first budget as both finance and public expenditure minister. More recently, he agreed to an interview days before Budget 2020 following the launch of The Currency.

On both occasions, and in the course of interviews in between, Donohoe was happy to explain the philosophy of his budgetary economics, and his central belief in incremental improvement through steady fiscal management.

In the first interview, Donohoe spoke of the political centre reinvigorating itself. In the latter, he spoke about the fluctuating, mobile nature of capital and the impact of an anti-revolution on the public mood.

Today, however, Donohoe is in more abrasive form. Yes, he is willing to discuss Marxism and global macroeconomics. But he also bares his teeth in relation to many of the pledges by his political opponents, particular pledges around house delivery and capital gains tax reform (“Fianna Fáil has a manifesto that is going to stall housebuilding and stall business transactions,” he says).  

He says he believes that auction politics has been replaced by competition politics. In the former, it is about pledges to cut taxes and increase spending. In the latter, it is about promises to deliver more houses or more hospitals.

According to Donohoe, the competition politics of this election is even more dangerous.

Donohoe may deride it, but this so-called “competition politics” is wooing potential voters. Fine Gael, by any standards, has had a poor election campaign. It has sought to talk about the economy and Brexit, while the public has been more interested in rural crime, health and housing.  

And it is the yawning disconnect, one that has been laid bare throughout the campaign, where we begin the interview.

Ian Kehoe (IK): The economy is growing. Unemployment is falling. And yet the message of fiscal stability and growth is not resonating for Fine Gael in this election. Why is that?

Paschal Donohoe (PD): Because of the immediacy of the challenge in housing and health, it conquers, for many voters, the benefit of having avoided a no-deal Brexit. From a human nature and from a political point of view, that is entirely understandable. The link that we are trying to make in all of this is not to say that we are only focusing in on the economy, but to say that we can only make progress on our social challenges if we have an economy that is strong and able to fund it.

It is the case that for the early part of the campaign, for many different reasons, the focus was on where we are in housing and then with crime. As we move into the latter part of the campaign, I think there is a growing understanding amongst voters of the necessary link between the performance of an economy and how you can improve public services.

Paschal Donohoe TD, is the Minister for Finance and the Minister for Public Expenditure and Reform. Pic. Bryan Meade

IK: The Fine Gael pitch has been about overcoming the crisis. You want voters to trust the party to get through a potential Brexit crisis, or a global economic shock. Has this been overly negative? Should there have been more around vision?

PD: The other view that I would offer to that, because I do believe in many other parts of our manifesto and in Fine Gael’s approach to our country’s future, is that we have a very clear vision regarding where we want to go to. If I look at the development of our country in Ireland 2040, if I look at the plans that we have on climate – I would argue that Richard Bruton’s climate action plan is a very credible and a very ambitious response back to the great challenge that is the change in our climate. One of the things that we have reflected on very carefully from a Fine Gael point of view is that if we were to appear on the day of the election and then suddenly announce a radical overhaul in how many new homes we can build or some radical new ideas, I think you and many of your colleagues would be asking the question: ‘If these ideas are so good, why have we not landed them in the last two years?’

“They are less obvious forms of auction politics but actually they have the potential to be just as damaging.”

IK: We have spoken before about the idea of incremental improvement, and you have outlined your budgetary strategy of year-on-year improvements – be it in public service or the tax burden. That is fine within the context of the budget. But that is a harder sell in an election, particularly when Fianna Fáil is proposing 50,000 new social houses.

PD: It is a more difficult proposition to sell. And this is something that the Taoiseach, myself and Simon Coveney actually thought an awful lot about. Ultimately, we believe that it is far more appropriate from a political point of view, and far more honest with voters, to have goals that are still demanding to achieve but ones that we believe are achievable and are consistent with what we have achieved over the last two years. I have been watching some of the commentary in relation to whether we have ‘auction politics’ in Ireland or not. In my view, we have a competition now that is very different to the kind of auction politics that we would have had a decade ago, but it is perhaps even more dangerous.

The auction politics of a decade ago was all about who could cut taxes the most and who could increase spending by the highest, particularly when it came to social welfare spending. The parameters for the different kind of competition in this election are around the number of homes that political parties are offering and are about the changes in the retirement age. They are less obvious forms of auction politics but actually they have the potential to be just as damaging.

Pensions, property and the public sector

IK: Let’s talk about the pension issue, because it was a massive issue in the early part of the campaign. We are already looking at a massive pension timebomb.

PD: In our manifesto, we are making it very clear that the change in the pension has already been legislated for and is going to happen. What we also did make clear, which I believe would have been inevitable as we got nearer to these changes happening, is we have outlined how we would pay for the transitional pension. But any political party who claims they can roll back the pension age – not only the one coming up but also the one after that – it will have absolutely massive consequences for the Social Insurance Fund.

What will happen is that the people who will pay for the consequences of that deficit in the Social Insurance Fund will be people who are thirty years of age, four years of age or in their early fifties now. It is not fair to them. What we have tried to do in our proposition is acknowledge that there was a gap between when you were due to retire and accessing the state pension age. We have outlined a number of payments to deal with that gap. But what we are not doing, unlike other political parties, is saying that the change can be reversed in its entirety.

IK: Another point of clash between Fine Gael and Fianna Fáil is housing. They say you are not providing enough funds for affordable housing, or indeed the money to expand the Help to Buy scheme. How would you respond to that?

PD: We are absolutely putting enough money in our manifesto for Help to Buy. And in affordable housing, we have affordable housing projects already under way. We have two of them underway in Dublin and in the very big capital ceilings that we now have in Ireland 2040, we have the ability to continue to pay for that for the coming years. But Fianna Fáil have lost all credibility on housing now.

IK: Why?

PD: Because they are proposing an SSIA scheme. An SSIA will lead to few homes being built between now and the release date of the SSIA. What will then happen when the money becomes available from the SSIA is that it will drive up the price of a smaller number of homes. All Fianna Fáil has to offer in relation to housing is the claim they would approach a “Dunkirk-style approach to housing”. They say they will build more, some of which they have funded into their manifesto. But they are not explaining where they will get the people to build these homes.

IK: Michael McGrath says they will come back from abroad if they see the government is backing housing.

PD: But we already have a massive construction sector, and massive levels of construction activity happening in the sector. I think an argument like that would hold ground if we had a low level of capital expenditure within our economy, or if we had a construction sector that was not growing. But only this week we had an economist warning about the risk of overheating in construction. If we have a construction sector that is already at the risk of overheating it would beg the question as to why the people who will come home have not already done so.

“Fianna Fail, in the weeks before the general election, said they would make a provision for public pay in their manifesto. They have not done so.”

IK: Is there an argument that this election has come eight months too soon? If you look at the pipeline of houses coming down the track, there is stock coming. The issue will be less acute.

PD: The point I have been making to many voters who have been raising this issue with me is that I am absolutely certain that as we move into the second half of 2020, our housing market and housing output will be in a completely different place to where it is now. I believe you are seeing the early indicators of that coming with what is happening to the price of homes in the Dublin area.

All that being said, two other views in relation to your point. Number one is the simple reality that we had run out of numbers in the Dáil. And even if we had wanted to wait eight months, it ignores the fact that we did not have the numbers to do it. The second point is that because housing is now a difficult issue for many of our citizens – and for other citizens who feel that housing is not an issue that affects them now but might affect them in the future – even higher levels of housing output within 2020 would still have led to the debate we are having now.

Paschal Donohoe: “When the money becomes available from the SSIA, it will drive up the price of a smaller number of homes.” Photo: Bryan Meade

IK: Unlike Fianna Fáil, you have given a figure for a potential public sector pay deal. They argue it does not make sense to show your negotiating hand at this stage – that it is seen as a starting point and not the end point. But you have been frank about what is on offer.

PD: Fianna Fáil, in the weeks before the general election, said they would make a provision for public pay in their manifesto. They have not done so. What we have done in our manifesto is simply assume the continuation of the current agreement. To do anything less than that make your costing and your manifesto a work of fiction. With respect to my colleagues in Fianna Fáil, I have already seen one wage agreement and I have negotiated another one. There is nobody in Fianna Fáil that has the kind of experience that I have had of the negotiations and the many challenges in relation to public pay.

CGT, business and promoting indigenous Irish business

IK: Fianna Fáil is putting aside €268 million for a cut to the Capital Gains Tax rate from 33 per cent to 25 per cent. You have continually resisted any change to the rate, despite intense lobbying from business. Was there a temptation within the context of this election to do something on CGT?

PD: I believe we could well get to a point on our economic cycle in which a move in the capital gains tax is justified and does represent a reasonable and justifiable use of the taxpayer’s money. But there is a reason it is not in our manifesto. If you do a change in the capital gains tax on the day of the budget, the only people who can know you are planning a change in the capital gains tax are officials in the Department of Finance, the Minister for Finance and the Taoiseach. You cannot flag in advance that you are doing a change in CGT and when you make the change in CGT in Budget day, you then have to implement it via resolution on Budget night.

“I find it absolutely stunning that Fianna Fáil would publish a manifesto in which they are proposing an eight point reduction in CGT but indicating that they will make that move in the next budget.”

IK: To ensure that deals are not stalled?

PD: Anything but that means you are influencing the market. And I find it absolutely stunning that Fianna Fáil would publish a manifesto in which they are proposing an eight-point reduction in CGT but indicating that they will make that move in the next budget. The effect of that will be that anybody who is planning a significant business transaction between now and this October won’t make it.

IK: They are also proposing changes to the entrepreneur’s relief.

PD: We have made some changes and I know Michael McGrath has committed to doing other things there. But if they are in government and they do make the CGT change, the move has to be eight points. If they say they are going to do two points now and two points in the next Budget and two points in the budget after that, that means you stall economic activity for years to come. They now have a manifesto that is going to stall housebuilding and stall business transactions.

IK: One of the key issues coming through the business elements of the Fine Gael manifesto is proposed greater linkages between the multinational classes and the indigenous classes. There have been arguments of a twin-track approach to government policy between multinationals and indigenous business. Has there been a change of tone?

PD: Yes, and I think it represents the fact that, from my point of view, I believe that the share that Ireland has of global FDI is now at a very high level. From my engagement in the economy over the last number of years I have seen two things happen. The first thing I have seen happen is people who would have worked in many of the global companies that are located in Ireland, some of those are now leaving those companies and getting involved in companies of their own. I have also seen midsized Irish companies make the step up to be really big global players. Obvious examples of that are Glanbia, CRH. I have seen all that change happen and I am also seeing the clear difference between the productivity levels in the really big companies and then in the others.

I think in the cluster of economic policy challenges and opportunities that we will have to deal with in the next decade, up there nearly at the top will be how we can better make the link between clusters of global companies that we have and the next phase of Irish domestic innovation. I would see financial services and fintech as being an area where we have the ability to do this. I would also see what is happening in food, as being another area where we can do it.

“Very few people appear to be talking about our level of debt. At some point it will come back on the agenda.”

IK: Do you think there is enough in your opportunity for entrepreneurs? The Fianna Fáil manifesto is quite pleasing for many entrepreneurs who have been looking for CGT reform and changes to the entrepreneur’s relief. I know you have made the point about CGT and Budget day. But is there enough in there?

PD: I believe there is. The plans that we have for capital investment, the plans that we have for higher education and the fact that in our manifesto we also have funding set aside each year for SME packages.

Of course, an entrepreneur looking at a manifesto from Fianna Fáil would now think of an eight-point reduction in CGT. Their eyebrows will rise when they see this. But it is the job of the Minister for Finance to exercise the greatest of care regarding the communication and execution of tax policy.

IK: So, you think it is dangerous.

PD: I think what Fianna Fáil has done on CGT is hugely irresponsible.

IK: You are using the Nama surplus to pay down debt. Given we are borrowing money so cheaply, was there a temptation to use it for capital expenditure or infrastructure?

PD: There was not, and the reason for that is that the levels of capital expenditure are now…they are funded out of our day to day tax revenue. The judgement was made that given we can afford to take capital expenditure even further and pay for it out of tax revenue that this is the appropriate approach.

The other sense that we would have is that the economic environment we are in, and the nature of the Irish economic model, is going to change. Very few people appear to be talking about our level of debt. At some point, it will come back on the agenda and what will matter then is that we are able to point to a path so that we were able to reduce it when we could.

Interest rates, independence and the global tax reform

IK: There is a line in your manifesto in relation to the Central Bank. You say you “value and respect” the independence of the Central bank. It that aimed at Fianna Fáil who are talking about reducing mortgage rates and engaging with the Central Bank?

PD: It is a response back from Fine Gael to the claims that are being made by all political parties regarding the fact they claim they can intervene in the banking sector. If any of them have the opportunity to take over from me and sit in this office, they will rapidly find that political intervention in the banking sector, while undoubtedly popular for a particular period of time, will have massive consequences for banks that are located here in Ireland and then directly for the Irish economy.

It would also be a response back from Fine Gael that the independence and the role of central bankers is coming under challenge and advanced scrutiny in other democracies at the moment. You can look at the agenda that Jay Powell would have in front of him. You can look at many of the issues that the new president of the ECB, Christine Lagarde, now has to deal with. I think it is very important for a party that is aspiring to be in government should send out a clear signal that it respects the independence of the Central Bank.

Paschal Donohoe: “I think what Fianna Fáil has done on CGT is hugely irresponsible. ” Photo: Bryan Meade

IK: We have been discussing finance. But during the election, there has been little debate about public sector reform. What is the key reform issue for you?

PD: Better governance of the next set of mega projects that we are about to do. We have two big projects in particular that are coming up. Both happen to be in transport, which are the expansion of the Dart and the Metro scheme for Dublin. They will be as big and demanding a challenge that we have seen with the National Children’s Hospital. Getting the governance right and the public spending right about those two mega projects is the most important reform we will have to make in public spending.

A couple of cabinet meetings before the current Dáil dissolved, we agreed to strengthened governance arrangements for those two projects and for Bus Connects. Getting that right is going to be a huge imperative from a public expenditure point of view.

“No understanding politician can give guarantees about their manifestos because there are contingencies and risk.”

IK: All of this is subject to shock. Where will the priority be in the event of a shock – if you need to reprioritise?

PD: I would let the surplus fall first. I would hope that by allowing the surplus to fall it would mean that we don’t have to make choices in relation to expenditure and taxation. And I believe the most important aspect of Budget 2021 is to get to a 1 per cent surplus. If you get to a 1 per cent surplus as a percentage of national income, it is a cash buffer of well over €3.5 billion, which should absorb a shock. I believe the papers that have been published by the OECD in relation to the two pillars of digital taxation and global corporate tax policy are a sign of the change that is coming.

If I may break with precedence and make reference to a Marxist philosopher Antonio Gramsci when he talked about “the old is dead but the new is struggling to be born”. That is now happening with the European economic model. The Irish economic model is now going to go through a phase of change. As much focused as we have attempted to be on what Brexit will mean for the Irish economic model, the changing landscape in relation to the nature of global tax and the management of global trade will be the background music for the Irish economy for the next five years.

I am very confident about our ability to work our way through it, particularly if we look at how we can strengthen the productivity link between larger companies and medium-sized companies, and if we maintain capital expenditure at the current level. But no understanding politician can give guarantees about their manifestos, because there are contingencies and risk.