Irish Fiscal Advisory Council may step up spending alert with pre-election budget verdict

The Irish Fiscal Advisory Council may step up its warning about potential spending excesses when it delivers its verdict on the Coalition’s pre-election budget next week.

The European Commission yesterday delivered its preliminary verdict on Finance Minister Michael Noonan’s October 13 budget, the last before the election, and, as expected, gave it the equivalent of a pass grade, but with reservations.

It said the Coalition’s 2016 budget plans, made up of a a €1.5bn package of spending increases and tax cuts, were “broadly compliant” with the strictures of Europe’s Stability and Growth Pact.

Ireland is preparing to exit the so-called corrective arm, or excessive deficit procedure, set by Brussels and which entails reining in the once huge annual budget deficits that characterised the national finances during the crisis years.

The commission will give its final verdict on the October budget next year.

The Government’s finances will then pass into the so-called preventative phase of oversight by Brussels.

Yesterday’s preliminary verdict was largely favourable, but came with a number of key provisos.

The commission warned that the 2016 budget carries “a risk of some deviation from the expenditure benchmark, a key part of the new surveillance regime for many years to come.

The IFAC, the budget watchdog, had expressed concerns about the potential of the Coalition’s plans to breach that expenditure benchmark in the immediate aftermath of the October budget.

It will deliver its verdict on the budget next week.

The IFAC last month expressed concerns about the Coalition’s announcement, delivered days before the 2016 budget, of an extra €1.5bn for spending in the last few weeks of this year.

The commission yesterday offered its reservations on that announcement.

It said: “The commission notes that the extra government spending announced for the last three months of 2015 comes at a time when the Irish economy is already growing at exceptionally strong rates.

“The commission therefore recalls earlier guidance… to use windfalls to accelerate debt reduction and invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the Stability and Growth Pact.”

It urged Dublin, despite “some progress”, to do more about fiscal governance.

The Government hailed the commission’s preliminary verdict as showing that “no changes are required to the budget announced in October”.

Mr Noonan said: “I also note that the commission has identified some risk, though not significant, in relation to the expenditure benchmark.

"This is why we need to maintain a tight control of expenditure, and my cabinet colleagues and I are committed to this strategy.

“Finally, as part of its remit, the commission provides policy advice to all member states.

"I have noted the advice which was published today, and stand ready to take it into account in policy deliberations.

Along with Ireland, France and Slovenia, which are also subject to the commission’s corrective arm, were found to be “broadly compliant” with the rules.

Last month, Spain’s draft 2016 budget was deemed “at risk of non-compliance”.