Ireland’s budgetary watchdog is clearly losing patience with the Government’s annual party trick of pulling a €1 billion rabbit out of its budgetary hat at the last minute.
The Irish Fiscal Advisory Council’s latest missive to Government, the 15th, pulls no punches, accusing the current administration of repeatedly breaching its own budgetary targets, dreaming up fantasy spending numbers for 2020 and beyond, and essentially squandering the recovery.
“Repeated failures to prevent unbudgeted spending increases have left the public finances more exposed to adverse shocks,” it said.
For an organisation normally restrained in its criticism and led by economist Seamus Coffey – he has penned several reports for government – this represents a move from defcon 1 to defcon 2.
The trigger appears to have been the Budget 2019 adjustment, which, all told, will come to €4.5 billion, €1.1 billion more than the Government flagged in the summer economic statement it had published just months earlier and €1 billion more than the council had advised.
Former finance minister Michael Noonan famously magicked up an additional €1 billion for Budget 2015, also to pay for overruns in health, prior to the 2016 general election. That has led to speculation that this Government may be headed in the same direction.
Economic cycle
The council’s main beef is that the Government is failing to adequately provision for the next downturn, an inevitable part of the economic cycle, in using the current tax bonanza to fund ever-increasing levels of expenditure – levels that are becoming increasingly out of kilter with long-term government revenue.
Since 2015 the Government has received an additional €3 billion in revenue, over and above the tax bounce from a fast-growing economy, in the form of larger-than-expected corporation tax receipts and lower interest rate repayments on the national debt. Yet even this has been diced and sliced on the slab of public expenditure.
The council believes the Government should be running a budget surplus, similar to other countries. This will not happen now until 2020 at the earliest. By that time the economic climate with Brexit may have changed significantly.
Counter-cycle budgetary policies – saving when times are good and spending when times are bad – are a difficult sell politically, however, not least when a substantial part of the electorate have yet to feel the uplift. And tax breaks for hard-pressed middle-income earners has long been the Government’s election calling card.
Precedence suggests the council’s warning, no matter how shrill, will fall on deaf ears.
