The finance minister had a major pandemic, propelling the economy through a potential catastrophe with calm and ease, when it would have been easy to panic and retreat in a defensive crouch.
But instead of pushing the big red austerity button at his desk in Marion Street, he spent two years on wage subsidies, tax breaks and generous unemployment benefits, betting that a better future lies on the other side of uncertainty.
Now that future has come.
With COVID-19 largely behind us, each Treasury update is better than the last as the recovery progresses. Public finances are prematurely in balance; In fact, May recorded a healthy surplus, exceeding even the most optimistic reading of budget estimates for the year.
So why is Donohoe in constant pain talking about Ireland’s financial achievement, when he must tapdance like Gene Kelly in a summer shower of euro coins?
Just as his department is dumping a bucket of ice water on its head, another record monthly tax take or quarterly growth statistic is reporting, as if it could be warmed to the good news.
Here he was yesterday at the budget conference of the Institute for Economic and Social Research, which kicks off the choreography until Budget Day in October.
“The days of cheap funding are gone,” he said, citing confirmation from the European Central Bank this week that interest rates would start rolling out in July.
In anticipation, yields on Irish government bonds are at an eight-year high of around 2pc – well, not the free money we’ve become accustomed to, but not by much either.
“We will target the lowest level of borrowing needed to respond to the various developments and tensions taking place in society and government,” he continued.
“Certainly, we will continue to help and recognize the cost of living challenge, but overall we need to create a budget and then deliver a budget that by itself obviously doesn’t add to the ongoing inflationary pressures. “
sounds bad! You’d never know that exactly a week ago the same finance minister announced that taxes have increased by 27 percent this year on the back of much stronger VAT, income tax and corporation tax receipts.
Yet Donohoe warned about inflation and tighter monetary policy, a challenging backdrop for public finances, even as the poor health of the domestic economy was made clear in government returns.
It is clear that ministers are anticipating a tsunami of spending demands in the coming months and are desperate to manage expectations, the real risk to not only the economic well-being of Ireland, but the painful folk of economic mismanagement before the financial crisis. Memory too.
In fairness, the indicators are not pointing in a clear direction. The ghost of inflation has materialized and is now haunting every sector of the economy, from manufacturing and construction to retail and restaurants. Whether the ECB can send it back to the Netherlands remains to be seen and it is far beyond Donohoe’s control.
As he pointed out at the launch of NAMA’s annual report, domestic demand – the best measure of Irish economic growth – slowed in the first quarter as consumers cut spending to cope with higher prices.
The same inflation is to some extent flattering the tax receipts of the state. As prices and wages rise, so too does VAT, the amount collected on people’s income and corporate profits. Also, the year-on-year comparison of Covid-hit 2021 certainly involves a financial confusion or two.
On the other hand, the job market is probably the strongest in living memory, wages are improving and both businesses and families have abundant savings. Above all, the National Treasury Management Agency (NTMA) has done an impressive job of both pre-financing the state’s spending requirements while reducing the cost of repaying the debt burden.
Is it possible that Donohoe is terrified of her own magic in the scary bedtime tales Fine Gail has been telling for years that Ireland is one of the most indebted countries in the world per capita?
For the past decade the Fine Gail brand has been fixing the mess left by Fianna Feel in 2011, but when we have a closer and more instructive example of the COVID crisis, there’s no need to keep repeating the lessons of the great financial crisis . to learn from.
When faced with the shock of the pandemic, Donoho was able to act with agility, decisiveness, and imagination. Wage subsidy schemes that funneled €10bn to sick firms over two years were driven by policymaking – and more so because they were against the type to the party of fiscal restraint.
Without a crisis to shake him into action, it appears Donohoe is returning to focus on the financially comfortable task of paying off debt – a necessary but not sufficient condition of a healthy economy.
October is your chance to do the next thing, not the old one.