Row flares over budget and EU spending rules

A row about whether the Coalition is playing fast and loose with the EU’s spending rules flared yesterday after the chair of the Irish Fiscal Advisory Council signalled it continues to have serious concerns about the spending plans of Budget 2016.

As reported by the Irish Examiner, analysts were astonished last Friday when the Department of Finance announced supplementary budgets worth €1.5bn across health, transport, social protection, and education.

The department said that the expenditure was justified because with the economy growing so strongly, the exchequer was harvesting billions more in tax revenues than it had anticipated.

The spending splurge, however, allocated to the current 2015 budget would likely bring the overall effect of the measures announced by Finance Minister Michael Noonan on Tuesday to a huge €3bn, analysts said.

IFAC chair John McHale said yesterday that with the economy already growing briskly that the watchdog may now “have to revise that positive assessment that we gave before”.

“There are some questions about the formal compliance with the requirements of the fiscal rules, both European and national. It completely undermines the Government’s own multi-annual expenditure ceilings,” he told RTÉ’s Morning Ireland.

Only last month, the country’s fiscal watchdog had appeared to deliver a huge endorsement to the Coalition and its plans then to deliver a budget package of up to €1.5bn.

It said those plans would not break new EU rules that come into effect from January and which insist that member countries pay down debt at a rate that depends on their underlying debts while pegging back spending increases from one year to the next.

But that was before the White Paper on Estimates of Receipts and Expenditure revealed that the Coalition planned to spend a further €1.5bn in supplementary expenditure, albeit allocated into the current year’s’ budget.

Mr Noonan yesterday said that in its preparations, the ministry had contacted the European Commission and was assured Budget 2016 meets “both the expenditure benchmark and the structural reduction” mandated by the new rules.

In an unusual move, the department issued a statement saying it had welcomed “the clarification” by Prof McHale on the EU rule regarding reducing structural deficits.

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But the Irish Examiner understands that the fiscal watchdog remains concerned about the total scale of the spending as outlined in the White Paper and in the budget and in deliberating in the coming weeks will continue to focus specifically on whether the budget breaks the key expenditure benchmark under the EU rules.

Some experts believe that though the Coalition has played fast and loose with the EU’s fiscal rules to present a €3bn expansionary budget, it is unlikely Brussels will shoot down the Coalition’s spending plans.

“It was a fiscal sleight of hand,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers.

“What has essentially been delivered over the last few days is a 15-month budget worth €3bn rather than a 12-month budget worth €1.5bn. The question that has been raised is whether Ireland has broken the rules. I think that in the strict sense the answer to the question is ‘no’, but that they [the Coalition] are not respecting the spirit of the rule.”