The National Economic Dialogue, which takes place on Monday, is the key public consultation which the Government holds before the October budget. It will be followed shortly after by the Summer Economic Statement, which is the official outline of the general direction of policy, including the room for manoeuvre on budget day itself.
It is customary at the dialogue for the government of the day to underline the uncertainties it faces, in part to lower expectations of what can be achieved on budget day. This year, these uncertainties are all too real. To the ongoing war in Ukraine and the unpredictability of the economic policies of the Trump administration can now be added a volatile situation in the Middle East.
What does this mean for budget policy? With relatively strong tax figures and a falling national debt burden, the Government is in a strong starting position. Vital investment programmes must continue.
But the outlook is clouded and risks in relation to the international economy and corporation tax remain in focus. The Fiscal Advisory Council in its latest assessment suggested that there could even be some more upside to corporation tax revenues, given the increase in the rate on big companies and the running down of tax reliefs. This may well be the case. But this will leave Ireland even more reliant on a few big taxpayers. And Trump’s policies also pose a risk to corporate tax receipts, even if the shape of this is not yet clear.
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Against this backdrop, it is essential that the budget remains in surplus and that the State continues to put cash aside in two funds set up to save excess revenues for future use. Better control of day-to-day spending is also required.
The dialogue needs to take place in this context, rather than on the assumption that spending overruns can continue, offering more increases across the board in day-to-day spending. Realism is essential in a world where unpredictability and adverse shocks now seem to be the norm. And this must extend to Ministers right across Government too, many of whom will be hoping that further ahead-of-inflation spending increases will be available for their departments and particular priorities.
Rather than splashing the cash, the Government needs to identify a few priority areas for additional spending and focus much more on delivery across the board. As Trinity College Dublin economics professor Carol Newman, who chaired last year’s dialogue, wrote in her summary of its proceedings: “The removal of sluggish processes and disjointed systems is important and this can only be achieved with joined up thinking and transparent dialogue.”
In the sessions on Monday, the most valuable thing which the delegates could do is to focus on this issue of delivery.
