Promises, promises. The general election here is now fast approaching and our politicians are filling the air with promises the Irish economy cannot afford. If even half of these promises were fulfilled the result could wreck our recovery.
But that is not stopping politicians on all sides. All the parties have dumped responsibility as they gear up to compete for our votes with wild promises of tax cuts and extra spending. Even a fool knows that when the budget is tight you can't have both at the same time, but that is what they are offering.
This crazy auction politics is going on even though the election has not even been called yet. One can only imagine what additional inducements are going to be dangled in front of us when the premature election battle of the past few weeks is replaced by the start of the real campaign.
That is likely to happen next week. Political insiders are saying Taoiseach Enda Kenny will call the election next Tuesday, February 2, leaving time for a three week campaign before the vote for the next Dail on Friday, February 26. But only he knows the exact dates.
What we do know is that Kenny is almost out of time because the government is nearing the end of its full five-year term. Under our constitution, that means the election has to be held before April 8, and the taoiseach will not want to leave it until the final few weeks in case some unexpected banana skins might emerge.
So we know the election campaign is imminent, which is why the air here is as thick with promises as the air in New York was last weekend with snow flakes. The truth is these promises are likely to melt away as fast as the snow. But in the meantime the blizzard of promises would make your head spin.
The following are just some of the things parties are promising to do if they get into government:
Fianna Fail says it would scrap USC (the extra emergency income tax we pay since the crash) for lower and middle income earners. They have promised to end the hated water charges and abolish the Irish Water authority.
They would extend maternity leave and introduce a childcare support tax credit. They would cut capital gains tax rate for entrepreneurs to 10 percent and 25 percent for everyone else. And that's only some of the Fianna Fail promises, which also include building 45,000 social houses.
Sinn Fein are promising to get rid of property tax, water charges and most of the USC, all to be paid for by more budget deficits, higher company tax, a new top rate of income tax above €100,000 and a wealth tax on assets over a million.
That's the opposition side. On the government side, the promises are even more extravagant.
The Labour Party have promised to raise the minimum wage to €11.30, which would be one third more than the 2014 level. With their eyes on the votes of the country’s 560,000 pensioners, Labour say they would increase the state pension by €24 per week over the lifetime of the next government, bringing it up to a whopping €254.30 a week for most workers here.
Even more eye-popping is a promise to provide childcare for €2 an hour, which is around one-third what most working parents in Dublin pay right now. And they are promising to reduce class sizes in schools, cut college fees and spend much more on the health service, among other things.
But the promises being made by the main party in the government, Fine Gael, go further than everyone else. A week ago Kenny said he wanted to cut income taxes across the board to bring Ireland into line with low-tax countries like America and Britain.
At the Fine Gael annual convention last weekend, he explained that this would include completely abolishing USC within the lifetime of the next government, although higher earners would be taxed more so they will not benefit as much. Fine Gael are promising to accelerate the introduction of universal healthcare, including free doctor visits for all children (instead of just the under-6s which now exists), cheaper medicines, expanded home care services to keep old people in their homes, and extra health spending to end delays in hospitals.
Among many other promises, Kenny said last weekend they would hire an additional 10,000 police, teachers, doctors, nurses and other front-line staff over the next five years.
These are just some of the promises from the parties that have made headlines in the past couple of weeks, and of course all the parties are promising to solve the housing crisis by various measures. The Labour Party is having its convention next weekend so we can expect more from them at that time.
The reality is, however, that all these promises would cost money, a lot of money. Adding up what Fine Gael and Labour are promising indicates additional spending of at least €4 billion a year. And ending USC would cost up over €4 billion a year in lost tax revenue.
That's a black hole of some €8 billion that has to be filled. Yet Kenny is urging people to vote the present government back into office to maintain stability in the state finances!
The government says all this will be possible thanks to our economic recovery, which led to an extra €3.3 billion in tax revenue coming in last year. They say there will be continued high economic growth and strong tax revenue in the coming years, allowing for extra spending.
But serious doubts about this have been raised by the EU Commission and by our own Fiscal Advisory Council, which is independent, as well as by several economists here.
Much of the feel good stuff coming from the government parties is based on the extra tax revenue that poured in last year. The problem is that two-thirds of it was corporation tax, mainly from the multi-nationals, for reasons that have yet to be fully explained. The EU Commission report urging the government to be cautious said that it was something to do with them re-domiciling patents.
The bottom line is that corporation tax returns are unreliable and can swing up and down. So it's not something we should be basing recurring extra annual government spending on.
There are also doubts about what might happen to our growth in the next few years. We are a small and very open economy. The world economy is far from predictable right now and we are heavily dependent on other countries being able to buy our exports. There is also the uncertainty in some EU countries, like Italy and Spain, which could trigger another euro crisis.
Then there is the question of the very low interest rates and oil prices that make balancing our budget a lot easier now than it will be when these go up again in coming years. The interest bill on our national debt after the bailout was around €10 billion a year, and that will be a lot more when rates go up again.
The fact is that although we are in recovery, we have a long way to go. We have been running budget deficits for nine years now and the budget this year will still be in deficit, despite our much hyped recovery. Our national debt has come down a bit but it's still close to 100 percent of GDP.
That is why recent reports from both the EU Commission and our own Fiscal Advisory Council urged that we should not be planning extra spending and instead should use any unexpected gains, like last year's extra corporation tax, to pay down debt.
With all these promises of extra spending and tax cuts our politicians are repeating the kind of behavior that got us into so much trouble before.
All the extra state spending based on huge property tax revenues during the boom left us with huge budget deficits when that revenue collapsed in the crash. Now we're planning to do the same thing based on extra corporation tax last year which may not recur every year and on future growth which could be lower than we hope.
Promises, promises. It's called mortgaging our future to get elected.