The background is €65bn in budget surpluses between now and 2026. However, the ESRi is forecasting negative GDP growth of 1.6% for the year and there was a shock fall in corporation tax of €1bn in August, down 23% in the third quarter of 2023. Meanwhile Sinn Féin is expecting to wrest some of the levers of budgetary power next year. Overall, it seems likely McGrath’s budget will be cautious, reducing taxes by €1.15bn including lowering the lowest Universal Social Charge rate from 2% to 1% at a cost of about €300m, and the highest rate from 4.5% to 4%, and increasing the wage at which the tax rate is 40% from €40,000 to €41,500, costing €400m. There will be spending increases of around €5.25bn, as well as a non-core package of temporary spending, mostly on Ukrainian refugees, Brexit and Covid of €4bn, and a final cost-of living package of perhaps €3bn. It is likely to provide for social welfare increases of only €12 weekly at a cost of €350m annually.
McGrath is from, in his own words, a “humble“ background. His father was a labourer and he was the first of his family to go to university where he earned a first-class honours in his Commerce degree. Later he worked as an accountant at KPMG where he met his wife Sarah, also an accountant.
From 1999 to now he has climbed the Fianna Fáil political ladder from Town Council to which he was elected at just 23 years of age, to County Council and then in 2007 into Leinster House as a TD for Cork South Central— a competitive constituency he shares with his older colleague and party leader Micheál Martin.
He walks a difficult tightrope of simultaneous loyalty to Martin and the demands of competing with his colleague to retain the party’s second seat. In recent years he has been touted as a possible successor to Martin.
McGrath is frequently described as conservative on social and economic issues. He was pro-life on the abortion issue but prefers to define himself as a “centrist” in political terms. Some newspapers over the summer headlined him as “ Mr Cautious.” This is hardly a surprise as it is the default setting for a Minister for Finance.
In my interview with him, I asked McGrath about Health, indigenous industry, the public finances and coalition with Sinn Féin.
Health
McGrath confesses to being “brassed off“ at the seventh annual spending over-run in eight years at the HSE, this time of an extraordinary nearly €2bn out of a total budget package of€11bn: “front line workers in the health service are working in difficult circumstances. Spending over-runs are a cause of great frustration”. It is understood they have reduced the scope for new health initiatives such as extending free GP care and improving mental-health and disability services, as well of course as scandalising other more scrupulous government departnments.
There have been overruns in all the country’s acute hospitals of 15-22%; inflation in medical supplies is 21%, rising to 31% in laboratory supplies. McGrath warns that this all “points to a need for reform at a whole lot of levels, not least in their systems; and there’s an urgent need for an integrated financial management system in the HSE”. He insists health executives must apply discipline to keep within their budgets.
He tells me: “One of the frustrations I had when I was Minister for Public Expenditure was trying to get a handle on the underlying position within Health because you had cash-based reporting and then you had accruals-based reporting. These were very different and it wasn’t always possible to get a tight reconciliation so you could fully understand what was the underlying position.
He also notes technology deficits. “I do think we have to invest in more in digitalisation and we are undoubtedly laggards in that regard in health services”. He considers that “accurate and timely reporting of data is where you start in getting a handle on expenditure patterns and plans are now in place to invest in such a system and that is an urgent reform that we need to deliver quickly”.
I ask him how quickly, given that the HSE was established to bring professionalism to the provision of these services and he says “my understanding is it will take a number of years”.
He thinks the new consultants’ contract will help and he notes the difficulties of Covid, the increase in acute presentations in the health system and general health-services inflation. I ask him if this means he’s saying it’s okay if the HSE overruns next year but he is firm: “No we’re certainly not saying that at all”.
Tax receipts
The Summer Economic Statement which set out the parameters for the budget stressed the perils of relying on the billions being thrown the exchequer’s way by a small number of giant multinationals. McGrath has spent the last year tracing out three new initiatives that will take these once-off tax receipts and use them for continued construction of public infrastructure, providing for the future pension needs of a rapidly ageing population, and paying down our massive public debt attributable to both Covid and the financial crisis that began in 2008. The fact that he can afford these prudential plans is testimony to the country’s continued success at luring foreign direct investment (FDI).
“We need to ensure we’re not forced again into what happened 15 years ago, where capital expenditure was smashed by 60%. We need to invest in infrastructure through the cycle – by creating a contra-cyclical fund to smooth out the investment cycle”.
These new funds are the product of the good times and McGrath seems determined to put them on a proper legislative footing so that they cannot be casually raided by future ministers when the economy takes a turn for the worse.
Advancing indigenous industry
McGrath is keen to recognise the end of the Foreign Direct Investment bonanza years while pointing to the threats out there in terms of de-globalisation, demographics, climate change and the competitive challenges of an increasingly digital economy. In particular he wants his budget to achieve a shift or re-balancing in favour of indigenous small to medium-sized enterprises. While reluctant to give details, he is promising to make a big start in this direction in this and his second budget next year.
He told me, “the FDI will always be incredibly important but I would hope that this budget will signal a shift in terms of real focus as well and the indigenous economy.
We really do want more of these very good young businesses to scale up in Ireland and at the moment many of them are choosing not to, and we have to try to fix that…If you’re an entrepreneur with a high potential tech start up do you choose Ireland as the place or do you go elsewhere?”. In particular he plans that “measures in the budget will try to incentivise owners to grow companies that export more on international markets”.
FF’s coalition prospects with SF
Michael McGrath seeks to pour cold water on commentator opinion that seems to deem it inevitable that Sinn Féin will be in government after the next general election. “I think you will see, at a minimum, a significant tightening as we get closer to the General election and it’s all to play for”. To emphasise his point he states that during the 2020 election campaign Fianna Fáil was seen as a racing certainty but its strong opinion-poll support dissipated in favour of insurgent Sinn Féin. This is as close as a Fianna Fáil member can get to admitting the 2020 campaign was a fiasco.
In 2020, Sinn Féin won 50% of its eventual vote during the campaign itself – an unpredictable result not even contemplated by the party itself. The Finance Minister seems again to tacitly admit the failures of the 2020 campaign by emphasising that in the next election Fianna Fáil will be fighting on its own and will not be “ruling in or out” possible coalition partners in advance of the election. His constituency colleague Micheál Martin took a different course in 2020 firmly ruling out any participation with Sinn Féin. The party now seems to be opening a door to that possibility.
Michael McGrath says this issue is not one of personalities but rather policy compatibility. As things stand he could not coalesce with them because of their economic policies that would impose significant further tax burdens on both individuals and companies. He clearly hopes Sinn Féin will lose momentum “as it faces greater scrutiny of its costings and promises in the campaign”.
Conor Lenihan is a former Fianna Fáil Minister and author of biographies of Charles Haughey and Albert Reynolds. He spent 14 years in Leinster House as a Dáil Deputy.
