Paschal Donohoe steps up to the finance plate as Taoiseach Leo rings the policy changes

The new Irish Cabinet under in-coming Taoiseach Leo Varadkar sees a numbers of significant changes in personnel.

Paschal Donohoe was the big winner. He was handed control of both the Department of Finance and the Department of Public Expenditure and Reform, arguably two of Ireland’s most important government divisions.

Ironically, it was Fine Gael which had originally split the two departments when it first came into power in 2011 with the Labour Party, due to their belief that the late Brian Lenihan, the previous Fianna Fáil finance minister, was overwhelmed by the workload during the crash between 2008 and 2011. In light of this, the departments currently remain separated, and have been augmented by the appointment of two junior ministers in each office. Previously the Department of Expenditure and Reform had no Minister of State.

With the addition of the finance portfolio to Minister Donohoe, who is highly regarded by Taoiseach Leo Varadkar, will now be in full control of the country’s October budget.

Paschal Donohoe was the big winner. He was handed control of both the Department of Finance and the Department of Public Expenditure and Reform.

Previously serving as the Minister of Public Expenditure and Reform since May 6, 2016, Minister Donohoe has a significant task on his hands in framing a budget within the constraints of the programme for government, as well as managing public expenditure at a time when the country is expecting more following the recovery from our economic misdemeanours.

Furthermore, Brexit adds another layer of complexity for the Minister: domestic industries are calling for reduction in taxes to mitigate the anticipated negative impacts of Britain’s departure; there are calls for increased investment in capital infrastructure from FDI-minded organisations; and institutions such as the IMF are warning of spending increases, at a time when cash-flow could re-emerge as a significant issue for Government with tax revenues collected this year falling well below target.

 

External forces

However, Minister Donohoe, who formed a strong partnership with ex- Minister for Finance Michael Noonan between May 2016 and last month, is well qualified for the position, and while he has never held the role of Minister for Finance before, many have pointed to the fact that he has the necessary qualifications

Last October Minister Donohoe delivered Budget 2017 due to Minister Noonan’s ill-health; a budget which was conscious, and perhaps cautious, of the external forces affecting Ireland. Brexit was, rightfully so, cited as a core factor in the need to protect the Irish economy and it is likely this message will continue for Budget 2018, especially given the relatively short timeframe Minister Donohoe will have before the delivery of the Budget in October.

 

Who is Paschal Donohoe?

A TD since 2011, Minister Donohoe had electoral success foiled on two occasions, the 2007 General Election and the 2009 Dublin Central By-Election, before a strong showing in 2011 saw him ride the Fine Gael wave into Government with, arguably, an even better showing in 2016 given his constituency lost a seat.

Prior to his appointment as the Minister for Public Expenditure and Reform in 2016, he served as the Minister for European Affairs from July 2013-2014, before being promoted to Minister for Transport, Tourism and Sport from July 2014-May 2016 in a Cabinet reshuffle.

Two Ministers of State have been appointed to support Minister Donohoe in the Departments of Finance and Public Expenditure and Reform, working across both departments to enhance the integration process.

Patrick O’Donovan, who was previously a Minister of State at the Department of Transport, Tourism and Sport, has been appointed Minister of State with special responsibility for public procurement, open government and eGovernment, while first-time minister Michael D’Arcy has been appointed Minister of State at the Department of Finance with special responsibility for Financial Services and Insurance.

Appointing two junior ministers may go some way to addressing conflicts of responsibility between the two departments, as outlined in the Dáil recently by Brendan Howlin, the Labour leader who was Minister for Public Expenditure and Reform from 2011-2016. Howlin said legislation required the finance minister to consult with the minister for public expenditure on various matters, but “the legal complexities around a minister being required under law to consult with himself are significant”.

While sources in the government believe the creation of a junior minister post in the Department of Public Expenditure and Reform will overcome this problem, Howlin still believes that a senior minister will retain legal control of a department over a junior minister.

 

Upcoming Budget

The upcoming budget will be a first for Varadkar as Taoiseach and he will be looking to secure the key policies outlined in his election manifesto. For example, as Minister for Social Protection from 2016-2017, Leo Varadkar sought a move towards a more European model of social welfare payments and an overhaul of the PRSI system to benefit the self-employed in particular.

We have now seen the beginnings of some of these policies, with confirmation of a merging of the USC and PRSI. It will be interesting to see how far Minister Donohoe can support these proposals, while managing his unenviable tightrope walk with Fianna Fail. A tax cut might also be on the cards, with Minister Donohoe favouring a lower marginal tax rate to keep Ireland as an attractive destination post-Brexit.

For businesses, aside from potentially a good time to be self-employed, what can be expected from the new Minister?

Firstly, a commitment to infrastructure is certainly on the cards. Especially in light of Minister Donohoe’s recent meeting with the European Investment Bank where Irish infrastructure projects were discussed and with particular reference to roads, healthcare and schools.

Minister Donohoe has had his issues with public transport while he was Minister at the Department of Transport, presiding over strikes by Dublin Bus, Luas and Irish Rail. Therefore, this recent history may influence his decision-making when it comes to further investment in this area.

He is personally invested in the Government’s Capital Plan, so expect that to continue to drive his public expenditure remit. During an appearance before the Oireachtas Finance Committee at the beginning of this month, however, the Minister did warn that a drastic increase in capital expenditure could overheat the economy, akin to mistakes made in the run up to the financial crisis.

 

Foreign investment

Minister Donohoe is also keenly aware of the anticipated impact that Brexit will have on Ireland, but equally aware of the opportunities for increased foreign investment. He was quick to praise Leo’s ‘Taking Ireland Forward’ manifesto, particularly highlighting the idea to double Ireland’s global footprint.

Minister Donohoe will play a strong role in acting as the figurehead for what Ireland can be on the global stage, much like Minster Noonan was tasked with reforming Ireland’s image to one associated with budgetary prudence and fiscal conservatism.

He is, also well-versed in the mechanics of the business world. He holds a first-class honours degree in politics and economics from Trinity College Dublin, and was commercial director at Procter and Gamble. His ability to effectively use his dual position and, more importantly the rooms that position puts him in, will perhaps define his tenure. He has big shoes to fill after all.

He is keen to call Ireland a world leader in climate change and it is certainly likely investment in renewables and associated agri-businesses will be on the agenda, and possibly higher than some might think.

From a wider agricultural point of view, much of how he can operate will depend on the effectiveness of our Brexit negotiations. One thing is for sure, Minister Donohoe favours balancing our growth so we aren’t totally dependent on the east coast, and while this will mean a focus on centres like Cork, Galway and Limerick, he will need to consider strong investment in our farms and where they are selling to should Brexit really take a nasty turn.

 

Political strength

The drive and ambition are certainly there, and there was some guile in announcing his support for Leo Varadkar in his bid to become leader of Fine Gael so early on. However, there is an underlying question of his political strength.

He has performed well as Minister for Public Expenditure and Reform, if being a little too lax on industrial relations. The Finance position is a different ball game and he will have to operate up against seasoned performers in Mario Draghi, Michel Barnier, Margrethe Vestager and Wolfgang Schäuble, to name but a few, in very uncertain political times, and with the looming threat of material damage to the economy.

In the weeks following his handing out the ballot papers for the Fine Gael leadership election in 2010, in which he was noticeably shaken, a fellow Fine Gael party member remarked that ‘he’d want to harden up’. There are bigger tests ahead with his new role, but he’s seven years older, seven years wiser and perhaps out from the shadows for the first time.