Why the signs indicate the Government could be planning a November election

The Government appears to be clearing space in its schedule to allow for a possible November election. Several department heads say they have been asked to prepare their budget asks earlier than usual.

The National Economic Dialogue (NED) event, held in Dublin Castle last Monday, took place almost three weeks earlier than previous years. The date of its upcoming Summer Economic Statement (SES), which will set out the financial parameters of the budget, has not been finalised but it may also be advanced by a week.

The objective may be to hold an early budget in late September or in the first week in October rather than the traditional second Tuesday in October. According to a senior source, the natural window for an election and the one favoured by many in Government is after the budget.

Such a timetable is problematic, however, as the Government will need to pass the Finance and Welfare Bills, the legislation that enshrines the budgetary changes, a process that can take several weeks. Once the Dáil stands for election all pending legislation is effectively halted.

One idea being floated in Government circles is to call the election straight after the budget, leaving the Finance and Welfare Bills to be passed in late November or early December as per normal but in this case by the next administration.

The Government would effectively be saying to voters if you want the measures announced in the budget (Minister for Finance Michael McGrath is already promising a “substantial” income tax package) you need to return the Government.

This highly controversial strategy would effectively make the election about the budget, a notion that is favoured by some, not least because of the resources available courtesy of windfall tax receipts.

The more probable scenario, however, is to fast-track the budget and the Bills as much as possible, carving out space for a relatively short three-week campaign and an election in mid to late November.

Ministers and Government TDs are said to be keen to avoid an election in January and February (the Government officially has until March next year to hold the vote) when post-Christmas bills arrive and winter energy costs bite. Consumer sentiment (and therefore sentiment towards the Government) tends to be lower at the start of the year.

The Government wants to try to frame the election around the economy, and having an immediate and presumably generous budget offering fresh in the minds of voters is one possible way of achieving this.

Naturally Government spokespeople are dismissing the fast-track narrative, suggesting the European and local elections and the Taoiseach’s availability have dictated the timing of recent events.

We had expected the general election to be a straight shoot-out between the Coalition and Sinn Féin on housing. But immigration and Sinn Féin’s recent wobble in the polls (which most link to immigration) have thrown the cat among the pigeons. The political winds are shifting and it’s hard to predict how this will play electorally.

Sinn Féin was at one stage 16-18 points in advance of Fine Gael and Fianna Fáil but that huge lead has evaporated. The latest Irish Times/Ipsos B&A opinion poll has Sinn Féin tied with Fine Gael on 23 per cent, three points in advance of Fianna Fáil.

The chances of a Sinn Féin-led government, viewed as a near certainty two years ago, or a Sinn Féin-Fianna Fáil coalition government, have, if the polls are accurate, diminished.

The Government’s thinking might be to play out Sinn Féin’s downward polling trend for another few months rather than opt for the Rishi Sunak option of calling a snap election while the economy is firmly on a disinflationary path and close to full employment. The UK prime minister is trying to limit the electoral fallout from what many see as a period of Tory misrule.

The timing of the election is indicative of the Government’s economic outlook. If the economy is likely to grow, if inflation continues to soften in the next half year, then the Coalition’s prospects will improve by waiting. In contrast, if conditions deteriorate then the waiting game is a poor gamble.

Euro zone inflation rose for the first time this year in May, to 2.6 per cent, a surprise uptick that is likely to weigh on the deliberations of European Central Bank (ECB) policymakers when they meet later this week to set interest rates for the bloc.

Until May inflation had been on a glide path towards the ECB’s 2 per cent target rate, with policymakers signalling they expect to start cutting rates this month. Is the May reading just a bump in the road or indicative of stickier price growth and a more prolonged period of higher interest rates?

Markets are currently pricing around 57 basis points of ECB rate cuts in 2024, and are indicating a 25 basis point cut in June, and one more by year-end.

While none of the economic forecasts for Ireland predict things to worsen, quite the opposite, the surprise uptick in inflation and a less bullish outlook for interest rates suggest the current cost-of-living squeeze isn’t going away any time soon.