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Noonan’s Last Budget Draws Near?

Posted on: October 6th, 2013

WILL Finance Minister Michael Noonan deliver his final Budget in nine days’ time?

Taoiseach Enda Kenny has promised a reshuffle next year. His Finance Minister could be the first casualty of a Cabinet cull.

When ‘Big Phil’ Hogan heads for Brussels as Ireland’s European Commissioner next autumn the cabinet vacancy will offer an opening for major surgery. Noonan need not be demoted. He could be despatched with dignity to Iveagh House, replacing Eamon Gilmore on his travels. Currently the Labour leader needs to spend more time at home – saving the party.

Supporters of Michael Noonan give him credit for the current fragile hopes of a return to economic stability. More enthusiastic Fine Gael loyalists prematurely cheer him from the rooftops as responsible for a turnaround. His critics see him as Mr Austerity. They paint him as a puppet of German Chancellor Angela Merkel.

Puppet or not, Angela will be delighted with Noonan’s Budget. He has been making all the right noises in recent days, publicly offering token concessions to Labour on the celebrated €3.1bn adjustment, but sticking stoically to the Merkel/Troika/European Central Bank agenda.

Noonan’s first two Budgets were Angela’s budgets. Next week will be her hat-trick.

Two weeks ago, as the German chancellor was basking in the euphoria of electoral victory, she was asked whether her policy towards Ireland would change. Decoded, now that she had defeated political zealots demanding a Germany-first policy, would she allow Ireland to ease up on austerity?

Her response was a tactful, but uncompromising “Nein”.

The chancellor started in militant mood: “Our course on European policy will not change,” she insisted. And then, probably to pacify the Irish reporter: “Ireland has made good progress,” she declared, as she patted us on the head, “this progress was not made in Germany, it was made in Ireland on the basis of the Irish understanding that things had gone wrong in the past few years.”

In other words, we Irish were repentant sinners. She omitted to mention that we were elbowed into deeper contrition by our German friends.

And then the killer plaudit: “I’m grateful to my colleague Enda Kenny for implementing the reforms so passionately. Ireland is one of those examples where it can be shown that things are improving.”

Enda Kenny, Angela’s “passionate” poodle, had delivered for Germany.

Angela went on: “Ireland has remarkably low yields [on its bonds]. I want to express my sincere respect for what Ireland has achieved over the past couple of years. Those developments are good and important for Ireland.”

Not half as “good and important” as they are for Angela and her German banker friends.

Praise from such quarters goes down a bomb on the bond markets. It makes Enda and Michael heroes of the Troika and the ECB. It confirms Michael’s status as the big European powers’ favourite finance minister.

Back home, such popularity in the Bundestag should be a clear signal that it is time to move Michael.

Enda’s challenge will be to use the departure of Michael as a silent signal to the Irish people that the age of austerity is ending, while still convincing European hawks that the hard line is holding. It should not be impossible. Angela may not fancy Michael’s successor, but – luckily – she just loves Enda. In over two years of austerity they have enjoyed a diplomatic and fiscal love-in. Enda’s continued presence at the helm should keep her happy. His fidelity is enduring.

Enda’s options for Noonan’s successor at Finance are limited. He needs a minister that Europe would respect rather than welcome, someone not as “reliable” as Michael.

Around Leinster House last week, fiscal fantasists were suggesting that a politically wounded Eamon Gilmore should return to take the reins at Finance. Labour’s leader could then finally match his general election rhetoric with ministerial deeds, showing that it is “Labour’s Way” not “Frankfurt‘s Way”. He could fly the Tricolour in Angela’s face rather than dance to her tune.

Why not? The job is his for the asking.

If he lived up to his rhetoric, Europe would be wary of him, mindful of his threats while in opposition. Our hand in Europe would be strengthened if we had a wilder man in Finance.

Sadly, the Labour leader is made of softer stuff. He is not heading for a confrontation with Angela, European bankers or the Troika. Instead, he is eyeing a good news ministry, probably Richard Bruton‘s gig at Enterprise, which announces hundreds of jobs every week.

Michael’s third Budget will be tediously predictable. We know that its shape must be acceptable to Angela. The dramatic public shadow-boxing over whether he will be seeking €3.1bn or €2.8bn in cuts and tax increases is cosmetic, aimed solely at the domestic audience. The final figure will allow him to obey Angela’s decrees while throwing a bone to Labour.

According to Grant Thornton tax accountants, the Budget will be punitive. It will include further increases in Dirt tax to force people to spend their savings, reductions in pension tax relief, an increase in PRSI for the self-employed and capital gains tax increases. Cigarettes and drink are likely to go up again. Property tax will dig deep next year, when we all pay the full whack rather than the 2013 half-payment.

If the minister decides to raise the VAT rate on the tourism and hospitality sector – back up from 9 per cent to 13.5 per cent – there will be devastation in restaurant, hotel and related businesses. Thousands of jobs will be lost. It would be folly for Noonan to reverse one of his few successful fiscal measures. He should ask Angela for a waiver on this proposal.

On Budget day, Michael will do what all ministers do. He will dress up his Budget speech with bullish rhetoric that is not matched by his measures. He will talk about the stabilisation in jobless numbers, how we have met our targets on tax and expenditure, our emergence from the bailout, the markets’ renewed confidence in the Irish story and our rocketing exports. The markets will rejoice.

Little will be said of the dismal growth figures – now downgraded to 0.5 per cent for 2013. Even less will be spoken of the banks, where a recovery now depends on two forlorn hopes: far higher economic growth or Angela ‘s generosity.

Not a word will be whispered about our vanishing salvation, the promised land that the Government once trumpeted from the rooftops.

Remember the reward that was meant to be coming from Angela for our craven budgetary obedience in recent years?

What has become of the historic breakthrough claimed by Enda Kenny in June 2011 when Ireland’s legacy banking debt was supposedly on the European table?

Our bust banks were going to be recapitalised by reckless, but kindly, German largesse channelled through the ESM. The rescue funds would be ploughed into AIB and Bank of Ireland. Gentle Angela and her grateful allies in such similarly soft-hearted countries as Finland, Austria and the Netherlands had resolved to buy shares in our nationalised banks at padded prices.

Ireland’s economic responsibility, our agreement to sign up for Angela’s beloved Fiscal Treaty, was being recognised. This was the austerity dividend.

There will be no austerity dividend. We were suckered.

Two weeks ago, immediately after Angela’s election triumph, Noonan’s minister-in-waiting Brian Hayes acknowledged the humiliation. Speaking on RTE News, he pluckily insisted that retrospective recapitalisation of Irish banks had not been taken off the table, but conceded that it was now “a medium-term project”. Angela’s dead duck.

If Noonan is elevated to Iveagh House to be succeeded by Hayes, or Leo Varadkar, or even Simon Coveney, it could be Angela’s last budget. And Ireland’s opportunity.

Sunday Independent


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