Further “slippages” in government spending on health and social welfare could overheat the economy, the Government has been told.
The stark warning comes from the Irish Fiscal Advisory Council (IFAC), which says that while the domestic economy is performing well, excess spending this year could force the Government to rein in plans for Budget 2020.
In its pre-budget report, IFAC says: “If spending overshoots in 2019, the Government should scale back its pre-commitments for 2020.
“Brexit could mean severe budgetary costs.
The council points to an increase in government spending which has accelerated from 4.9% in 2015 to 6.7% last year. This was mainly due to demands in health.
Government revenues have been boosted by “unexplained corporation tax” and a bounce in the economy.
Nonetheless, the council says these gains are likely to prove temporary, with corporation tax accounting for almost 19% of receipts last year. Spending beyond amounts planned for this year could have negative consequences, it says.
“Further spending slippages are likely to happen again in 2019,” said IFAC. “Another health overrun, the payment of the Christmas bonus, and underestimated social payments could mean spending €1.3bn higher than previously budgeted this year.
“Repeating the pattern of slippages would be inappropriate. It could add to further overheating pressures and reduce scope for budgetary policy to support the economy in future.”
Further falls in spending this year must be made up, without relying on corporation tax income, fiscal chiefs recommend. While the planned €2.8bn extra in budget spending next year is approved, there is an argument to be even more cautious this year, the council says.
Finance Minister Paschal Donohoe is due this week to meet parties, including Fianna Fáil and the Independent Alliance, to examine budget proposals amid fears of a disorderly Brexit at the end of next month.
While there are fresh efforts to agree a deal over a potential North-only backstop, there is concern this may be opposed by unionists and Brexiteers. The Cabinet is expected to get an update on Brexit today. while The budget is also expected to be discussed.
Ireland’s position in the Brexit standoff has been strengthened after the promotion of Phil Hogan to the powerful role of trade commissioner. The former minister would lead any talks with Britain over a fresh trade deal with the EU."