The offices of the Irish Fiscal Advisory Council are located not far from Dublin’s Misery Hill, named supposedly for the resident leprosy victims and the gallows the docklands district once housed in centuries past.
And in its latest report, the fiscal watchdog — which was set up at the height of the banking crisis to prevent any repeat of the human misery caused by the much more recent financial disaster — delivers another stinging warning about the dangers of spending windfalls from unexpected tax revenues.
The watchdog said the Government is paying so much lip service to the terms and conditions of the EU spending rules that are meant to stop public finances again sliding into another crisis.
Without saying as much, the report effectively blames Finance Minister Michael Noonan for using up the windfalls the country tapped from the huge surge in corporate tax revenue in recent years on additional expenditures.
The spending not only went “against the spirit of the [EU’s] new budgetary framework” but was risky in its own right because it used up inherently unsustainable increases in corporate tax revenues, the watchdog said.
Spending the corporate bounty and using an accounting treatment of AIB preference shares two years ago helped ramp up the base for future spending, including in the 2017 budget.
The watchdog says that meant that unjustifiable levels of spending are baked into subsequent budgets to become a permanent fixture, at a time when the economy is growing at the fastest pace in Europe.
Ironically, the spending increases were based on accounting windfalls that came this way after a number of multinationals raced to rearrange their global tax affairs following a crackdown led by the Organisation for Economic Co-operation and Development (OECD) against the world’s largest companies sheltering or artificially reducing the revenues from any government anywhere in the world.
The IFAC won’t say as much, but the Government effectively ‘gamed’ the EU fiscal rules.
The well-known problems with GDP for measuring the output of the Irish economy meant the Government’s target to reduce the debt to 45% of GDP is not after all overly demanding and “risks complacency”, the IFAC says.
However, the report praises the efforts the Government made in the past to reduce debt levels. Strong growth levels over the next few years will inevitably slow in the longer term.
Like the Economic and Social Research Institute, the watchdog also says that the business of building houses could again suck in too many resources.
The strong recovery should continue over the next few years. And the report also strikes an upbeat tone about the prize, beyond 2018, waiting for any Government if it adheres to the EU rules. IFAC offers hopes beyond Misery Hill.
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