Fiscal Council warns €5bn in Covid spending permanently locked in

In hard-hitting report, Ifac say budget projections through 2025 are 'poorly founded' 

The fiscal council also said Government supports will be required this year but that "future untargeted stimulus" will not be required if the economic recovery gets underway. Photo: Gareth Chaney/Collins

A report by the Irish Fiscal Advisory Council (IFAC) has slammed the Government for "poorly founded" projections, warning any new spending in the coming years will likely need to come out of higher taxes or from cuts elsewhere.                              

Ifac's latest fiscal report, Looking Beyond Covid-19, is a judgement call on the economic forecasts published by the Department of Finance last month and reflects its growing exasperation over the way Government goes about planning its budget sums for future years.  

Ifac said the Government is basing its big spending plans through 2025, including on the Sláintecare overhaul of the creaking Irish health system, on incomplete planning and on revenue sources that cannot be relied on. 

It warned €5bn in increased spending may have been permanently locked in during the Covid crisis and that much of the economic bounty of the anticipated recovery through 2025 has already been spoken for.               

The fiscal council also said Government supports will be required this year but that "future untargeted stimulus" will not be required if the economic recovery gets underway.                  

The Ifac report is more hard-hitting than its assessments of recent years but nonetheless has good news on the prospects for economic recovery after Covid.

It believes the Department of Finance is somewhat too pessimistic about the scale of the economic bounce back and more or less agrees with the department that the fruits of economic growth will mean that the annual budget deficit will have closed by 2025. 

That opens up the chance of reducing the national debt burden built up during the Covid emergency.   

The State's gross debt will fall to the still-elevated level of around 100% of modified gross national income in 2025, according to the Ifac forecasts. 

However, Ifac warned new permanent spending measures will need to be funded by tax hikes or by cuts in other programmes, while "large permanent increases in Budget 2021 have already committed gains from future growth". 

"The Government has failed to deliver a credible medium-term strategy" despite it facing huge demands from an ageing population and climate change while becoming more reliant on the corporation tax receipts of a handful of multinationals, it said.

The fiscal report echoes the concerns of other reports, including the Economic and Social Research  Institute which last week set out the extra billions in tax the State will need to tap to meet its spending and investment commitments for Sláintecare, building and retrofitting homes for climate change, and investing billions in infrastructure.

In its report, Ifac said it was “not until the publication of the Sláintecare Implementation Strategy and Action Plan 2021–2023, in May, that the actual costs associated with the reforms in 2021 were clarified as being some €1.2bn of the 2021 health spending allocation”. 

It said there remains no clear guidance as to how far these costs go towards implementing the Sláintecare reforms in full.