Paschal Donohoe has been thinking a great deal about the nature of capital in recent times – how it mutates like a virus, swirling and evolving as society advances. A generation ago, capital was easy to define and simple to understand. It was the roads of a country, or the schools of a town. It was the factory on the company’s balance sheet, or the engines and machines of old-style commerce. It was a palpable thing, a physical, demonstrable manifestation of wealth.

But now, Donohoe is just not sure. The axis has deviated too much. Capital has strayed from physical construct to fluid concept, becoming less visible and more intangible. The idea of capital is now the idea itself; a piece of code or a logo or a patent or a brand. The balance sheets of corporations are no longer rooted in physical assets but built on intellectual property and things you can’t actually touch or feel.

It has been a quiet revolution, but a revolution, nonetheless. And, as he prepares his third budget as Ireland’s finance minister, Donohoe has been contemplating the impact of this anti-industrial revolution on Ireland, its economy and its people. It impacts, he argues, the relationship between the state and its citizens, raising profound questions for policymakers and politicians.

“How can we talk about fairness in an economy where most citizens cannot even actually see the sources of wealth, let alone understand how it’s taxed,” he says. “Likewise, how can you talk about redistribution when most people don’t know what is being redistributed?”

Donohoe cites Capitalism without Capital, the 2017 book in which economists Jonathan Haskel and Stian Westlake forcefully argued that the rise of intangible investment was an underappreciated cause of global phenomena from economic inequality to stagnating productivity. Donohoe has read it on multiple occasions, and it has both shaped and helped reinforce his underlying political philosophy.

“If there is never a feeling of progress being made in an economy or society, it can have a fundamental effect on how communities can feel about themselves.”

Paschal Donohoe

“The changing nature of capital has been the background music to lots of the challenges that democracies are now grappling with. While the nature of capital has changed, the returns on capital have accelerated ahead of the returns on income. This, in turn, has had a bigger effect on political systems and political parties than we sometimes think,” Donohoe argues.

Haskel and Westlake, in their book, identified the rise of both populism and unilateralism as a reaction to this yawning chasm of wealth between corporate behemoths and the rank and file citizen, feeding into a growing disenfranchisement with the political centre.

Donohoe is determined that this will not happen in Ireland, and it is that determination that has led to many of his fiscal policy choices. Critics, including a great deal of economists and fiscal hawks, have argued his government has been ill-prudent enough with the national coffers, and that, instead of recording surplus, he has spent heavily and unwisely.

Donohoe, however, is not for turning, arguing that he must strike a controlled balance between the needs of tomorrow and the demands of today. “If there is never a feeling of progress being made in an economy or society, it can have a fundamental effect on how communities can feel about themselves. That is something that’s on my mind a lot in decisions that I make at the moment,” he says.

Three years ago, as public expenditure minister, Donohoe said that the centre must hold, quoting WB Yeats. His views have since changed, arguing that that it is no longer enough to maintain the status quo. Instead, he wants the centre to regenerate, and he believes that this involves making sure that people do not feel the need to fragment to either fringe.

“Maintaining political order and political consensus is the first step,” he says. “And the necessary and vital step in that is being able to generate a belief in how you manage an economy and how you fairly allocate the benefits of a stable or growing economy.”

So just how will Donohoe manage this process in the coming weeks?  Will his centrist ideology hold firm, or will the disparate nature of this unwieldy minority government force a detour?

Moreover, it must be crafted against a backdrop of Brexit, a proposed realignment of international corporate tax rules and an increasingly depressed global economy, brimming with tariffs, trade wars and gloomy economic indicators.

I ask if he is worried?  Donohoe leans back and smiles: “I love the fact that I will spend all of the day sitting down with other government colleagues trying to reach agreements. Tomorrow morning I’ll be with Fianna Fail. Later in the week I’ll be with the Independent Alliance. While I couldn’t always say it’s been great fun, it is great work.”

*****

It is 9.00 am, on Monday 23 September. Budget 2020 is just 16 days away. Paschal Donohoe has already revealed that that there will be no personal tax cuts, but many other issues remain outstanding. The limited fiscal space means there will be an unseemly battle to secure what little can be allocated. So, there will be haggling, arm wrestling and political parlour games.

As minister overseeing both the Department of Finance and the Department of Public Expenditure and Reform, Donohoe’s diary is crammed with budgetary meetings. Yet, he is happy to honour a longstanding commitment to give an interview to The Currency in its first week.

Unlike many political interviews, there are no agreed rules of engagement. Donohoe did not seek a list of topics in advance, nor did any of his handlers. He says I can ask any questions but jokes he may not answer them. With the proximity to the Budget, Donohoe is limited by what he can say on the content of his speech, although he is happy to talk about the political ideology and the general economic framework behind it.

He does not bring notes or briefing papers. Instead, he simply takes off his jacket, straightens his tie and takes his seat at the meeting table in his office, a spacious and tidy room that both gives a flavour of the seriousness of the portfolio (the tri-colour, ornate art-work and large wooden desk) and also the nature of his personality (there is a row of bobble heads on the window shelf, many of them characters from the Star Wars franchise, and, on the wall, various caricatures of Donohoe that have appeared in the newspapers.)

Over the course of a lengthy interview, we discuss Brexit, Budget 2020, the international tax landscape, the rise of populism, his political ambitions and the government’s policies towards entrepreneurship in Ireland.

We begin, however, with the Irish economy.

IK: Ireland now has full employment. The economy is growing strongly. Tax receipts are surging. Yet, the economic consensus is that we are either on the cusp of overheating or we are on the verge of a Brexit-induced crash. How do we square those two things?

PD: We have a risk helix in place at the moment. On one hand, we do have the potential for the economy to overheat in the future. At the same time, we are on the cusp of a potential deflationary event if we are faced with a no-deal Brexit. I think the way we square both of them is, number one, by putting in place plans that continue to invest in the productive capacity of our economy. That is why continuing to increase capital investment is very important.

Number two: We have to make other choices in relation to current expenditure and this is why I have made the decision not to go ahead with a personal tax reduction package like I have in other budgets. It is why I have said we need to be a lot more focused with our social welfare plan for this year. It is about making new choices in current expenditure, about continuing to invest in capital expenditure and also supporting what the Central Bank are doing in their application of the macro prudential rules. 

IK: Many economists have challenged the spending plans of this government, arguing that you need to be more prudent. What is your response to this? Do you think that many are overly cautious as a result of the financial crash a decade ago, the scale of which few saw coming?

PD: Well I think there is undoubtedly a cultural imprint in our society and our economy that is a consequence of the fact that the crash that we went through was so searing. It means people’s expectations regarding any future difficulty we might face have been reset. Because what we went through between ‘07 and ‘11 was so tough, I think many citizens now feel that if we get into another difficulty it’s going to be a rerun of what we went through across that four- to five-year period.

 “That is the balance that I always have to try to get right. I am responsible for an economy inside the democracy. Not a democracy inside an economy. That middle line is what I’m focused on trying to deliver.”

IK: If there is a downturn, do you think the fall off in output will be closer to 2 or 3 per cent as suggested by some reports, or would it be greater?

PD: Well I suppose the Irish economy, like any other economy, has lots of experience of going through recessions and moderations and economic growth. What we went through a decade ago was just on a completely different scale to that. Anything that could go wrong with an economy went wrong to the Irish economy at the same time a decade ago. I think a consequence of that is that our risk aversion for what might happen in the future has increased.

But of course, the balancing act I need to continue to walk is how we avoid the risks in the future, but also trying to meet enough of the needs of today at the same time. And whether those needs are how we can make progress in people’s living standards or how we can make progress in investing in things that can make a difference to our future. I have to try and get the equilibrium right between trying to plan for the difficulty of tomorrow but also trying to meet the needs of today.

IK: You mentioned risks. One of the biggest risks is the effect of a decade of underinvestment in the economy – housing, education, infrastructure. Given the potential impact of Brexit and other economic indicators, how can ensure we make the required investment in the economy to ensure that it does not inhibit future growth?

PD: I think we have made good progress on that. My key economic insight from taking over economic portfolios in the immediate period after the crisis is that if you don’t maintain public capital investment, the need and difficulty only grows in the post-crisis period.

IK: Has there been enough investment though?

PD: For this year alone, we’ve increased capital investment in our economy by 24 per cent. Last year it went up by 10 per cent. There would be many who would say that we haven’t accelerated the improvement in our national finances even more at a point of economic growth. But the converse of that is leaving aside the difficulties that we have, for example, managing health expenditure, has been to the degree which we’ve massively increased public capital investment.

My view is that we have to increase public capital investment not only to help our economy deal with the kind of risks that you’ve just identified. But if you go through a post-crisis period and your levels of capital investment are still in line with what they were during the crisis period, the effects of that on society – not to mention the effects on the economy – are just too difficult and too risky. I did not want that to happen to Ireland. We have made very ambitious choices now in relation to public capital investment.

“They are the fiscal affairs council, they’re not the economic affairs council. Their job is to look at where we are with budgetary policy.”

IK: You mentioned some of the criticisms around trying to reduce the deficits and get into a surplus. Does the criticism critique annoy or frustrate you?

PD: No, because it is the nature of the finance minister to be surrounded by those who on one hand would argue that you’re spending too much, and then others that would argue, you’re not spending enough. Some  would argue you’re cutting taxes too much, others that you are not cutting them enough. That is the nature of the job that I do. If economics is meant to be the science of allocating scarce resources between competing demands, politics is the art of this. It’s the nature of the job that I do.

But, for those who would argue that, for example, we should have a larger surplus and who called on me last year to balance the books, well, we did that last year. This year we are going to post a surplus. Next year, if we can work our way through Brexit, we will post an even larger surplus. The counter argument to all of this is how our society would feel if we had a higher surplus, but we had levels of capital investment that were in line with the crisis period. How would we now feel?

That is the balance that I always have to try to get right. I am responsible for an economy inside the democracy. Not a democracy inside an economy. That middle line is what I’m focused on trying to deliver.

IK: The Irish Fiscal Advisory Council has repeatedly criticised government spending decisions and other areas of finance policy. Many say you don’t listen. So, should it simply be reconstituted in a different manner?

PD: No, the Irish Fiscal Advisory Council do a really important job and they have my support in their work.

IK: Even if the criticism is you don’t listen to them at times?

PD: They are the fiscal affairs council, they’re not the economic affairs council. Their job is to look at where we are with budgetary policy and they play a really valuable role. The debate that I don’t listen to them some of the time, the counter argument to that which I’ll always make is, if you look at where we are now with levels of current expenditure growth, we are at a fraction of where we were in the pre-crisis period. Organisations like Ifac have a very important role to play in helping us get to that point.

 The budget’s Brexit blues

A number of weeks ago, Paschal Donohoe did something almost unheard of for a finance minister – he ruled out personal tax cuts. Many have privately done it or got the message public through strategic leaks. Donohoe, however, called a press conference. It was a bold move at managing expectations, particularly when he still had to meet many of his government colleagues and Fianna Fáil, the party that props up the government through the confidence and supply agreement.

There was a mooted response; most had long acknowledged that the potential shock from a no-deal Brexit could derail the government finances. Taoiseach Leo Varadkar had previously said the government was drawing up two budgetary scenarios – one in the event of a no-deal and the other in the event of a smooth exit or delay. With little clarity from either Brussels or London, the government is enacting the worst-case scenario.

There will be limited room for spending increases: there is “fiscal space” of some €700 million, of which just €233 million has been earmarked in relation to taxation. There may be some novel tax raising measures, but overall, Donohoe’s largesse will be austere.

Indeed, days after our interview, the Economic and Social Research Institute told the Government to consider a supplementary Budget in the New Year to respond to Brexit, warning that a no-deal Brexit may be worse than thought and could push the economy into recession.

IK: Budget 2020. You laid out the broad parameters of it. No tax cuts, strategic spending. Briefly, what was the rationale for going public so early?

PD: Because I felt it was important to demonstrate to our economy the recognition that I have for the kind of uncertainty we might have to manage. I learned so much from what happened in our economy in the 07/08 period, where even though there was a sense that something really bad was coming, we kept on making a number of decisions in relation to taxation, social welfare and public pay. And what that meant is that those decisions then had to be undone.

If those decisions had not been made so early, the ability of our economy and our country to respond back to the shocks would have been higher. And if we go back to what we touched on earlier on, I believe there is a legacy of understanding in relation to what happened in the pre-crisis period that I am looking to tap into to make the case for what we’re going to do.

If we make other decisions in relation to, for example, making sure we set aside enough money for demographics for our public services, if we make other decisions in relation to looking to maintain capital investment, I think they are the better decisions to make now. I believe the economic consequences and the political consequences of getting hit by a no-deal Brexit, that we will be better able to manage it.

“Can we have personal tax reductions in the medium term and beyond this year’s budget? The answer to that question is: Absolutely yes we can.”

IK: I will return to Brexit. But obviously, there will be no personal tax cuts in the budget. But there is an expectation that they will come down in the coming years. That poses a problem for you. How can you reduce the personal tax burden, while making the capital spending commitments that everyone acknowledges is needed? Indeed, there are many out there, such as the Irish Tax Institute, who said that there are too many people as it is outside of the tax net.

PD: I thought the Irish Tax Institute’s point was really valuable to have in our public debate. But this is the very reason why, in my last two budgets, I have not changed the entry points into USC on income tax. And the reason why I haven’t done that is that I believe if we are in an economy of growing incomes, by not changing the entry point you will have more and more people making a contribution to the funding of our public services. That is the way I think it should be. Can we have personal tax reductions in the medium term and beyond this year’s budget? The answer to that question is: Absolutely yes we can.

But I think with the period of risk that we could have in the first quarter of next year, we have to make a different decision and a different priority call. And that’s what the government has done.

Ireland and the battle for global tax revenues

The international tax landscape is changing; led by the OECD, the weight of international opinion is against intensely aggressive tax planning. Ireland, for years an outlier in this debate, has softened its position, and is attempting to rehab its reputation.

The change was signalled when Donohoe delivered a stark message to a meeting of Irish tax advisers last year, warning that the price of tax certainty (aka the 12.5 per cent corporation tax rate) was legitimacy and that he could only offer stability to a system he could stand over.

In essence, Donohoe was signalling that he would work with the OECD as it was better to be with them than against them. The finance minister followed it in May in a speech delivered to the Harvard Kennedy School, where he acknowledged that change was coming, and that it was in Ireland’s interest to build a global consensus on that change.

The rhetoric has been backed up by a string of amendments to the Finance Bill closing tax loopholes and making the system more accountable. Nonetheless, Ireland remains scarred by its reputation. Gabriel Zucman, the noted economics professor at UC Berkeley, recently reiterated his claim that Ireland was the tax haven of choice for US multinationals. 

Joseph Stiglitz, the Nobel laureate, has called Ireland a bad citizen, robbing the taxes of other nations.  

At the OECD level, Ireland emerged as something of a winner from the first round of the Base Erosion and Profit Shifting (Beps) process, with significant swathes of intellectual property (and a resulting tax spike) coming to Ireland from he sandy beaches tax havens. Now, though, the second round is focusing on taxing allocation of the global tech giants. This has obvious implications for Ireland.   

IK: Ireland was a winner from the first round of Beps. We saw an awful lot of onshore activity and IP coming here but the fear is that we won’t be a winner from the next round of the OECD negotiations. Is that a concern to you?

PD: Yes, it is. I think it is entirely possible, and achievable, that we can come out of the next round of global tax reform in a stable position and in a position where we are able to continue to offer a competitive proposition to international and domestic companies.

I believe that is achievable, but we also have a period of great change coming up. And what I’ve looked to do, in terms of my management of this internationally and within Europe, is to say that change is coming and it’s in our national interest for us to be part of that change and looking to influence that change as opposed to being in a situation where the consensus on these kinds of issues fractures. If our international tax architecture splinters, the risks for Ireland in that situation are really big.

IK:  The OECD is talking about a minimum corporate tax on multinationals of 12.5 per cent. Surely that erodes Ireland’s tax competitiveness overnight?

PD: That is why I made a decision in the speech that I gave in the Harvard Institute earlier on in the year to say that I believe that the pillar of the OECD work – of looking to tax where value is created – is a better landing zone for global tax policy but also clearly for Ireland. The embedding of principles of minimum effective taxation into global tax policy would create new challenges and risks for Ireland.

But the one thing I think we should have in our minds as we are looking at that risk is an acknowledgement now that due to the new provisions that are in place in American corporate tax policy, they have now began the journey themselves of laying out minimum effective tax rates.

And even though that happened in America, even since that has happened, we’ve continued to do well both from an FDI point of view and also growing our tax revenues.

IK: Have we done too well in terms of growing our tax revenues? I put it to Pascal Saint-Amans last week: “as it sustainable in relation to corporation tax?” He said: “o because Ireland is simply doing too well,” and this will lead to other countries coming after that money. How do you respond to this?

PD: That will depend if a new consensus on global tax policy can be reached and the detail of what that consensus will then be.

But I have work underway in the Department of Finance to produce a further update on the sustainability of corporate tax receipts and we aim to have that work complete by next March. What we will be doing is independent of the work that is under way in the OECD, which won’t be concluded until the end of next year. But if I look at the shift in corporate tax revenue over the last couple of years, it has clearly been significant. And even now, getting a feel as to where we stand, the sustainability of our corporation tax receipts pre the implementation of a new OECD framework is worth having.

“I’m leading the journey. But those who are practicing tax policy here in Ireland and implementing the law that I’m setting also need to be part of this journey and need to be aware of the risks.”

IK: There is a feeling among smaller nations that the current round is essentially a land grab by the large economies to get more tax. It has a massive impact on small open economies who are highly globalized like Ireland.

PD: Competitiveness is not just a prerogative for big countries. When we are dealing with these kinds of issues, we have to continually assert the rise of small countries, particularly small countries that are endowed with either the geography or the natural resources. So, I’m really aware of that risk. But I also believe the best way to manage that risk is for us to lay out where we want to go and lay out our credentials. For not only change that we have made, but the change that we also want to be part of.

We continue not to get the recognition that we merit for the kind of change that we’ve already made in our corporate tax policy here in Ireland. Finance Bill after Finance Bill. We make changes that don’t get the recognition sometimes, that I believe they deserve. In the Finance Bill that’s coming up, I’m going to be making further changes around transfer pricing rules and I’ll be making those changes because they’re part of the commitment that I have to ensuring that our corporate tax policy is both legitimate and competitive. And we’ll be making further changes in the area of anti-hybrid mismatches again to ensure that we are moving our corporate tax policy into new international standards.

I do want to reiterate what I’ve said before, which is this is a journey that everybody needs to be part of here in Ireland. I’m leading the journey. But those who are practicing tax policy here in Ireland and implementing the law that I’m setting also need to be part of this journey and need to be aware of the risks that we could face if we don’t continue to demonstrate that we are on the right side of both legitimacy and competitiveness.

IK: You referenced “Finance Bill after Finance Bill.’ The Double  Irish has been shut down, a number of the schemes that have been put to bed. So, why is Ireland not getting the level of recognition you believe it deserves?

PD: Because this is the most competitive economic policy arena there is. And it doesn’t have many neutral observers in it and everybody who is putting forward a view is putting forward a view because they have an agenda either in relation to how tax policy is structured globally, or they are putting forward a view on behalf of their country.

IK: I am sure you have seen the IMF report on phantom foreign direct investment. It stated 40 per cent of FDI was phantom and tax driven. Were you surprised by that? Or did you believe it?

PD: The definition used to define FDI [in the report] is one I would challenge. I believe the idea that intellectual property and that intellectual capital is not in some way a valuable part of what FDI looks like is a view that I would contest. But those kind of debates show why it is all the more important to continue with the pathway that we have of reform for our tax policy, but also looking to make it competitive and to stand over what its competitive.

IK: But was Ireland simply too slow to make these changes?

PD: I genuinely don’t believe so actually, and I think what Michael Noonan did when he was minister for finance to go ahead and begin the elimination of the Double Irish at a point of our economy and still dealing with the consequences of the economic crisis, I think it was an enormously brave move. But I have accelerated that momentum because I believe it’s simply the right thing to do for our economy and also the right thing to do to show our own taxpayers here in Ireland that I’m aware of the need for tax policy to be fair and to be seen to be fair.

Supporting indigenous Ireland Inc

From the days of Lemass and Whitaker, we have long been world-class in luring mostly US multinationals to Ireland through a combination of charm, geography, skills and tax.

But Ireland struggles when it comes to growing those companies indigenously (in truth, much of the continent struggles to, but there are few countries with such a disparity of success between FDI and indigenous enterprises as Ireland).

There is now a growing perception among Irish entrepreneurs that Ireland has essentially created a two-tier system, where multinationals get the support and affection that Irish firms can only dream of, until they attain the necessary scale.

Indeed, a recent report on entrepreneurship in Ireland by Avolon, the aircraft leasing giant established by the tycoon Domhnal Slattery, noted a lack of encouragement of entrepreneurship in Ireland, little focus from the government on entrepreneurship and a lack of ambition from Irish companies.

Furthermore, there is little tax incentive for early-stage companies, and despite its huge funding war chest, the report said Enterprise Ireland was unable to provide the sectoral experience required.

“If I look at where we are here at home, and this builds into the social and political area, the big risk that’s always on my mind is what happens if in 20 or 30 years time we have a generation of Irish citizens who neither have a pension nor own a home.”

IK: There is a body of opinion out there that there’s too much focus on multinationals and not enough was done for indigenous Irish companies. Do you agree with that thesis?

PD: I don’t agree with that thesis. And if you look at the work that Enterprise Ireland does and if you look at the value of their high performance start-up company programme and the kind of investment that goes into it from the government, that I believe is recognition of the value that we place on entrepreneurship here in Ireland and the value that the government places on it.

That being said, if you go back to one of the points I made earlier on regarding how we reset our economy to deal with the fact that globalisation itself is likely to change how we support Irish entrepreneurs even better in the future, this is a challenge that we have to rise to.

One of the things that we have been looking at for example are programmes like the EII scheme that are about how we can make benefits of entrepreneurship better available to entrepreneurs here in Ireland. That is a scheme and a programme that we are looking at.

I think the two domestic economic challenges that we have from a job creation and income creation point of view are how we can even better support Irish entrepreneurs to scale up. And then how we can find a cluster of medium-sized Irish companies that are capable of making the next step up to a higher level of scale in the way the Glanbias, the CRHs and the Kerry Groups of the world have. That would be an integral part of how we will need to rebalance our economy as we see the nature of the global economy begin to change as well.

“I’ve heard that view on CGT and that view has been put to me. But it is just one of the many competing needs that we have on the resources of the country.”

IK: You reference the EIIS scheme. The business community does not believe it is fit for purpose nor working as intended. Similarly, the share incentive scheme, Keep, is not working. Does this not show that the government does not understand the needs of smaller Irish companies?

PD: So what we did actually is, before the summer, we organised a seminar with representatives of smaller Irish companies to hear their view on both of those programs because I have got feedback regarding their operation and I’m considering that feedback at the moment.

IK: Capital gains tax on founders. I mean wherever you go in relation to Irish business, owners and entrepreneurs, it is the one thing that comes up time and time again that it’s simply too high and it’s out of kilter and it’s anti-competitive forcing entrepreneurs to look at potentially even going to England.

PD: I’ve heard that view and that view has been put to me. But it is just one of the many competing needs that we have on the resources of the country. Getting the balance between the need for tax reduction and the many forms of capital investment or public spending that we’re called on to make is the balancing act that we have to maintain.

The known unknowns of Brexit

IK: We’ve avoided Brexit up until now but we need to deal with it. One way or another, whether there’s a deal or whether Britain crashes out, there is going to require a fundamental recalibration of the economy. Are we ready for that recalibration?

PD: So I addressed this issue actually last week in my speech in DCU and the speech was more focused upon for the political points that I made about unionism and the concerns they have about the backstop, but actually the first half of the speech was all about that.

And it was all about the other part of Boris Johnson’s letter to Donald Tusk where he talked about the ability of the British economy to engage in regulatory divergence as, in his words “being central to their democracy.” And so, are we ready for that kind of change? Well the first thing I’d say is, to be approaching a period of change like that with such momentum in our economy at the moment with our economy growing at the pace that it is, it means that we are approaching this period of change with our economy as currently designed in good health and moving at a good pace of growth.

But we need to have a debate now regarding the medium-term challenges and changes that we’re going to need to make. These are not changes that we’re going to make in a single budget or in a single year because they are going to be bigger changes regarding the composition of our economy and the change of our economy.

And a key issue will be, or could be, depending on a number of different scenarios unfolding, if the British economy decides to go down the path of regulatory divergence in relation to a number of policy areas. What does that mean for Ireland? I know what we should not do. And I have a growing view regarding what we should do. What we should not do is, we should not see matching such a policy path as being the same thing as being competitive with it. And I think if that is a definition of competitiveness that is pursued by future British governments, I believe this government and future Irish governments should take a different path.

IK: So, don’t simply try to match whatever incentives or whatever the UK does to revive its economy?

PD: I believe that would be the wrong approach for Ireland and we also have to bear in mind that it is absolutely a choice for future British governments regarding what path they take. We also have to bear in mind that that is an economy making those decisions who print their own currency.

We’re in a very different place. So in terms of what I believe is the approach Ireland should take, if we are faced with that scenario, I think there are three things we need to do. The first one is that we need to double down on our membership of, and the development of, the European single market. Because the development, for example, of the single market in the area of services, how the single market could better develop a digital dimension to itself in the years to come offers up huge opportunities for Ireland.

The second thing is we need to look at levels of productivity within our economy. Again, going back to the question that you put to me regarding the different tiers of our economy and the gap between the very large employers and the smaller ones. How we can move to productivity of the smaller companies towards the average level of productivity in our economy is a big policy challenge that we have to deliver.

And I think a lot of the work that’s underway now from Heather Humphreys’s department in the future jobs programme, much of the ideas and policies in that programme, are how we will do that. But we have to give that a degree of steely focus that for example we gave to budgetary adjustment during the bailout period, because in the long term I think the consequences of delivering that agenda will be really positive for Ireland. And then the final area is public capital investment. Our history and public capital investment is one of surges and troughs.

IK: The economist Stephen Kinsella crunched the numbers on that point for this publication. It is constantly up and down like a Yoyo.

PD: And trying to have a steady path of public capital investment. An incremental improvement in our national finances. Trying to have a parallel twin track approach both of those areas is the key to securing Irish prosperity if the United Kingdom develops a different path for their economy in the future. That is the debate now that we need to have in Ireland now once we are clear on how the United Kingdom will manage their exit from the European Union. If they have a transition period that opens the window within which we can have that debate.

IK: Would you like that transition period?

PD: Absolutely and understandably. We are putting so much of our effort and time into managing the consequences of what an exit will look like and imagining the form of exit. But the path of exit in the future is a really, really big deal for Ireland.

Risks and opportunities

IK: Brexit aside, what do you think are the biggest threats to the economy,  over the next 10 to 15 years. Is it pensions, housing?

PD: So, I think there’s a group of them and I’ll answer the question kind of comprehensively and then I’d also like to talk about what I think are great opportunities for the Irish economy as well because I think they are equal.

If I look at what are the risks that we face, I cluster them into economic risks that we face, but then there’s also political and social issues that we really have to be aware of. If I deal with the economic ones first, leaving aside Brexit for a moment, as you suggested we do, the key medium-term challenge that I think we face is: What are the consequences for a small open, highly globalised economy if the nature and pace of globalisation really begins to change? We are so plugged into a certain consensus in relation to the trade of global services for example and the movement of global capital – if the consensus in relation to that ever permanently shifts, that has really really big challenges for Ireland.

I’ve kind of made the point in this speech that I gave in the Brexit institution in DCU last Monday that we’re very familiar with one national question which is our relationship with the United Kingdom and our relationship with Northern Ireland. But I think there’s another new national question that we have, which is what happens to a global small economy if globalisation changes in its nature. And I think that is a big challenge that we will have to confront.

And then I think the other challenge that we will have to reflect on is not so much on the immediate challenge of how we deal with Brexit, but what a post Brexit UK-EU relationship looks like. What that means for the economic model of Ireland and how we may need to respond back to that. If I look at where we are here at home, and this builds into the social and political area, the big risk that’s always on my mind is what happens if in 20 or 30 years time we have a generation of Irish citizens who neither have a pension nor own a home. And again how do we begin to make decisions now to avoid that happening.

Socially, the point I would be equally pressing upon me versus the equal economic challenges that we’ve just described there is how we maintain a consensus for an open economy within our country. We are seeing what happens in other democracies for citizens who feel they don’t have a stake in how an economy performs, where citizens feel that the benefits only accrue to others. I think we’ve been very fortunate in Ireland because of decades of getting some really big decisions right to try to avoid that happening here. But we can never ever take that for granted and that is something that has been on my mind constantly since I’ve been Minister for Finance.

IK: They’re the threats. You’ve said you wanted to come back to the opportunities?

PD: I think there is an extraordinary opportunity for Ireland to do enormously well economically off the back of making the proposition for economic and social openness inside the European Union and inside the transatlantic relationship. I think the case for the benefits of being an open economy and our ability to make that argument has never been stronger. And I think if we can maintain policy certainty in a number of really small areas in relation our labour markets in particular and how we manage international taxation and then finally how we manage data I believe the economic and social benefits for Ireland could be immense.

Future ambitions, past legacies

IK: Minister, you are one of the few senior figures in recent weeks who hasn’t been putting out tweets criticising Fianna Fail’s management of the economy. I am interested in that and I am also interested in your thoughts on your two immediate predecessors – how do you assess their legacies?

PD: It’s only when you do a job like this that you understand the responsibilities of the job and the equilibrium that I’ve touched on during our interview between the need to prepare yourself for the challenges of tomorrow and meet the needs of today. You really only get to understand the day to day consequences of that when you have done the job of being Minister for Finance. My recognition of the burdens and consequences of that job from my predecessors is now high. Because I now understand what it’s like to do the job because I’ve done it.

IK: You are 45, you’re occupying the second highest office in the land. Where do you go from here Minister? Is it Europe? Is it higher?

PD: I want to finish up this job whenever either the Dáil or the people of Ireland want me to finish it up. I’m very ambitious doing this job for as long as I can. And the sole ambition that I have is for the citizens that I represent. To say that “he did all he could to get the balance right between tomorrow and today”. I have no more ambition beyond that.

IK: If there is an election and Fianna Fail are in government or whatever else and you’re not there, what would you like the legacy of your time between public expenditure and finance to be?

PD: Setting a new agenda in relation to our corporate tax policy and its place in a changing world. Number two, the recognition that I’ve given of public capital investment. And number three, doing all of that while moving our economy into a surplus.

IK: Do you enjoy your job?

PD: I adore my job. I love what I do. There’s not a day I wake up that I don’t look forward to coming in here and to do my best every day. I was not one of these young men that was guided by that determination to be a politician and to hold high office. But now that I am here, I love it.

IK: What was the trigger for entering politics?

PD: The trigger was a combination of a real fascination with the intersection between how economies perform and political institutions. Which came out of study, which came out of a lot of reading. And then secondly, combined with this, I have a deep sense of social conscience about what I do and that got me into public life.

I’m unbelievably lucky to have got lots of opportunities by virtue of the fact that this is a really good and a really decent country. I grew up in a family that were able to give me opportunities and I’m absolutely determined to try to have an economy in which everyone can have the opportunities that I was fortunate enough to get.

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The interview ends. Donohoe stands up, straightens his tie and puts back on his jacket. There are just 16 days to the budget and his diary is littered with meetings. Indeed, he is now late for the next one. Later in the week, Donohoe calls to check in and see if there are any follow-on questions. “What’s in the budget?” I ask. He laughs and wishes The Currency well.

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