Government budget watchdog rebukes 'imprudent' spending

Government budget watchdog rebukes 'imprudent' spending

Government budget watchdog IFAC has delivered its sharpest rebuke yet to the Government, saying it is pumping up spending while failing to control healthcare spending when it should be planning for the “inevitable” hard times.

In its formal fiscal assessment of Finance Minister Paschal Donohoe’s 2019 budget, the Irish Fiscal Advisory Council focuses on the consequences of the additional spending measures Mr Donohoe unexpectedly unveiled for 2018.

Its chair Seamus Coffey, the UCC economist, told reporters that “what happened three or four days before the budget” when Mr Donohoe said he would tap an unexpected bounty of €1bn in additional corporate tax receipts to help inject more funds into healthcare to plug another annual overrun, will lead to a substantial increase in overall spending in 2019.

The budget will increase spending by €4.5bn next year, up from €3.5bn the watchdog endorsed as “appropriate” just weeks beforehand.

And “imprudent” spending for 2018 has raised the platform for higher spending for years to come.

“Repeated failures to prevent unbudgeted spending increases leave the public finances exposed,” he warned.

The additional health spending was used to cover new hires and will carry through to next year.

Moreover, the Government’s healthcare spending plans are “not credible” for future years.

“Instead, pressures in the health sector and elsewhere should be funded through sustainable tax revenues or decreases in spending categories elsewhere,” IFAC said.

In the assessment, IFAC said that while the short-term outlook for the Irish economy remains strong, a slowdown in coming years was “inevitable” because after growing strongly for a number of years that the economic cycle would surely turn.

It praised the Department of Finance for its analytical forecasts for the economy, work which points to the risks of an overheating economy.

At almost 17.5%, corporate tax revenues currently make up a higher share of all tax revenues than the much-criticised stamp duties accounted for on the eve of the crash.

IFAC said there is no need for continuous austerity to cut debt, saying other small countries are getting their houses in order by running budget surpluses.

It estimates spending has increased 5% a year, well above the 3% or 4% rate of underlying growth for the economy.

At a time when Ireland’s gross debt is running at 100% of modified GNI, an external shock could push debt levels back to 120%, after the huge struggle to reduce the burden from 160% of GNI since 2011, it said.

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