The pragmatic optimist

Jul 31, 2018
Minister Paschal Donohoe T.D. talks to Accountancy Ireland about tax policy, geopolitical risks and life in politics.

Since his election to Dáil Éireann in 2011, when he topped the poll in the constituency of Dublin Central, Paschal Donohoe’s political ascension has been both steady and steep. The affable father of two moved quickly from the back benches to the ministry of both finance and public expenditure and reform with notable milestones along the way, not least his deft handling of the sale of the State’s 30% stake in Aer Lingus to IAG in 2015 as Minister for Transport.

Donohoe’s path to Government Buildings wasn’t so smooth, however. Having returned from the UK, where he worked as sales and marketing director for Proctor & Gamble, he engaged in public service, first as a member of Dublin City Council and later as a member of Seanad Éireann. Donohoe then contested the 2007 general election, but was unsuccessful, and again suffered defeat in 2009 when he put himself forward in the Dublin Central bye-election following the death of Tony Gregory.

2011 would prove to be very different. Donohoe was elected on the second count in a predominantly working-class constituency and within three years, secured a seat at the Cabinet table as Minister for Transport, Tourism and Sport. Today, he heads arguably the State’s most important portfolios and is gearing up to deliver his third Budget in October. Donohoe has been consistent in his prudent approach to the country’s finances and believes in the concept of a ‘just society’, as espoused by the late Fine Gael T.D. and Attorney General, Declan Costello, which promotes trade, an open economy and an open society.

Economic landscape

While the recently-published Summer Economic Statement points to a stabilised financial position, falling unemployment and economic growth on the tenth anniversary of the financial crisis, Donohoe’s sight is set on pursuing policies that improve living standards and ensure that Ireland doesn’t find itself at the epicentre of another such crisis.

“The Irish economy has made extraordinary progress versus where we were a decade ago,” he said. To illustrate the point, Donohoe notes the nearly 2.2 million people employed, the improved national finances which, for the second year in a row, are broadly balanced and the country’s steady “and, at times, remarkable” economic progress.

“However, a recovering economy is not the same thing as a society that’s healed,” he added. “And we are all aware now of the pressures and needs we have to respond back to, such as housing supply and supporting improvements in public services. So, while I can always point to the progress that has been made, we always have more that we need to achieve. That is the essence of public life.”

While politicians are often accused of becoming alienated from the electorate, Donohoe is acutely aware of the impact of austerity in Dublin Central in particular. From constituents whose mortgages are now owned by so-called vulture funds to those who are in arrears, the Minister continues to engage with the often-harsh consequences of economic policy. “All of this has informed my understanding of what we need to do to make sure we have a way of treating people that is fair, that is understood, and that is in line with the needs of our regulators,” he said. “To date, we have managed to avoid the kind of repossessions that many feared at the depth of our crisis, but we need to keep our framework,” Donohoe continued. “We always need to challenge ourselves to make sure that it is as fair and effective as possible.”

Geopolitical risks

While Donohoe can control the State’s approach to fiscal policy and has established a ‘rainy day fund’ to “build up our budgetary resilience in the future”, Ireland remains susceptible to external geopolitical shocks as a small, open economy. The Government’s Draft National Risk Assessment 2018, which identifies the strategic risks facing Ireland over the short-, medium- and long-term, highlights a number of potential challenges. These include Brexit, instability in Northern Ireland, the future direction of the EU, and the changing distribution of global influence and move away from a rules-based system.

Irrespective of what happens in the international sphere, Donohoe’s buoyant optimism leads him to believe that Ireland’s economy will weather the fallout of any challenges it might face. In the context of Brexit, he agrees that the magnitude of the challenge will depend on the severity of the exit. “Clearly, the softer the Brexit the more manageable it will be for our economy but if it is to be a very hard Brexit, it will pose an exceptional challenge for the Irish economy,” he said. “But even if it will be an exceptional challenge, I am confident that – because of how our companies have diversified their trading performance and the improvement that our economy has delivered in our national finances – we will have it within ourselves to respond back.”

Beyond Brexit, the one big-ticket item Donohoe is keeping an eye on is the global trade consensus – an issue that has become increasingly topical in recent months. “We are deeply integrated into the global trading architecture. If that architecture changes and the terms of trade shift, that has the potential to have a very significant effect on the Irish trading performance,” he said. “That is therefore a matter I would constantly monitor, but I believe that the kind of changes we have made to date in having a more diversified export model and what we have done to rebuild our domestic sector are the kind of things that we need to do to ensure that we have an open economy that is capable of withstanding the kind of shifts that could occur.”

Tax policy

Another shift that certainly would occur if France and Germany had their way is a move to a common corporation tax regime across the eurozone. According to a statement from the German finance ministry following the recent announcement of a Franco-German joint proposal for corporate tax harmonisation among EU member states, “Europe needs a common framework in tax policy. This is the only way to prevent unfair tax practices and a harmful tax race to the bottom, and to create transparent and fair conditions of competition for European companies.”

Despite criticism from several quarters including Dutch MEP, Paul Tang, who described Ireland and Luxembourg as “tax pirates” and Oxfam, which labelled Ireland a “conduit tax haven”, Donohoe and the Department of Finance have been steadfast in the view that Ireland is not a tax haven, it does not meet any international standards for being so considered, and the 12.5% corporate tax rate is sacrosanct. But is Donohoe’s thinking influenced in any way by the accusations levelled at Ireland?

“What is important for me is that we have a tax code and tax policy that is both competitive and that also deals with concerns regarding global taxation and the fairness of global taxation,” he said. “I don’t believe that Ireland gets the credit it deserves for the changes we have made with the elimination of stateless companies, the phased elimination of the so-called Double Irish, the introduction of mandatory disclosure of information and tax planning. These are all big changes that we have made but don’t get credit for.

“We need to continue to deliver a balanced approach with a tax code that is competitive while, over time, dealing with issues that are subject to international focus,” he added. “And that’s why the BEPS process for the OECD is so important, because it allows all countries to gradually move together in dealing with issues that are of international concern.”

Life in politics

With talk of a general election swirling, responsibility for two departments and an endless list of issues to consider, Donohoe has much to balance in his professional life – but he still manages to find time for his personal priorities. “I drop my kids to school every morning and then I work very hard up until the very end of the day... I then read before I go to sleep every night because it is a great way to bring the working day to an end,” he said. “I do have a young family but in that regard, I am no different from many working parents across the country. You do your best to make things work by having clear priorities and organising your time as well as you can during the day.”

And as someone who sees himself as just another contributor to the country’s workforce, albeit one with significant responsibility, Donohoe is “relentlessly optimistic” about what Ireland can deliver and what he can do as the man in charge of both offices. “The challenges are many, the pressures are frequently intense, but I am really, really optimistic about what we can do, what we are doing and what we have done,” he said. “And whenever the challenges grow a little bit, I just reflect on the journey that Ireland has come from and it gives me great optimism that we can deal with the problems of today.”

Accountancy Ireland expresses its thanks to Brendan Clerkin ACA for proposing Paschal Donohoe T.D. for this issue’s feature interview.