Irish Fiscal Advisory Council slams 2015 spending splurge
Days before the Finance Minister Michael Noonan announced his €1.5bn in spending increases and tax cutting plans for 2016, the Department of Finance unveiled an additional huge package in spending measures for 2015.
This supplementary budget amounted to a further package of €1.5bn in expenditure measures which was to spent across a number of Government departments in the last few weeks of this year.
The spending splurge included filling in another huge spending hole in the health budget, this year running to €600m, as well as other spending on transport and social expenditure.
However, the watchdog, set up in 2011 at the height of the banking collapse to fire proof the public finances against any return to the crisis years, said it wasn’t fully told in advance about the additional spending.
And the watchdog chair, Prof John McHale, said that the unannounced extra spending in 2015 looked a lot like measures taken by Governments during the worst of the boom years.
The Government had deviated from a “prudent path” to use an unexpected bounty of revenues sourced from corporate tax receipts, even though it was still not totally clear whether these revenues could be relied upon in the future.
The additional spending had the effect of adding to the spending base in framing of the budget sums for 2016.
Presenting the supplementary budget so late, the Government had “deviated” from the path of financial prudence and had increased the risk that the State would fail to meet the new budget oversight rules from Brussels from 2016.
In the end though, IFAC said Ireland’s 2016 budget complied with the new EU Expenditure rule guideline, but only by the narrowest of margins.
With the bounty spent, that leaves less fiscal room should a crisis hit.
As the country adapts to the legacy of the bust, Mr McHale said that the risks facing the country have been well documented “because we are going to be living with the high-debt crisis for some time”.
Threats now range from the slowdown of emerging markets, Britain leaving the EU (Brexit), the potential for the eurozone economy to stagnate or the risks to the world financial markets as the US central bank starts to hike interest rates.
Mr McHale said though it was true that the Revenue Commissioners had reassured that the increase in corporate tax receipts was broad-based across the economy, it was still a fact that Ireland relied on a small number of large companies for the bulk of its corporate tax receipts.
(The Department of Finance yesterday published a Revenue letter detailing that over half of the unexpected additional €2bn in receipts collected this year from corporation tax was sourced from a number of “very large multinationals”.)
Since the Government did meet the European rules this year under the so-called excessive deficit procedure and is on course to comply with the new preventative strictures in 2016, Prof McHale said people “may well ask what is the problem?”
He said however that the additional 2015 spending was “an opportunity missed”.
And IFAC re-iterated its warning that the budget lacked a “well-specified” outlook and did not allow enough room to account in future years to meet demographic and other significant spending pressures.
Asked whether IFAC had been kept in the dark about plans on the 2015 spending last month, Prof McHale told reporters that the watchdog was not fully informed about the largest part of the €1.5bn in additional spending measures.
Nonetheless, IFAC still had a good working relationship with the Department of Finance.
Having strayed from the “prudent financial path”, IFAC believed the Government was committed to keeping to the “prudent approach”.
Mr McHale said IFAC did not underestimate the political pressures facing any Government, saying that that was the reason IFAC was set up in the first place.
But “following prudent fiscal policy during the relatively good times will help ensure a sustainable growth path and limit the need for austerity measures in any future downturn,” IFAC said.
