Bumper €1.5bn spend to woo voters

The Coalition last night significantly raised the stakes in its pre-election preparations after disclosing plans to splash an additional €1.5bn in gross supplementary spending across health, transport, education, and social protection — all by the end of this year.

The huge amounts of additional expenditure will be allocated to departmental budgets and will go to fund new policy measures on the likes of transport, as well as to plug a huge €600m overrun in the health budget in the current year.

That the Government planned additional expenditure in supplementary budget spending this year was well known. There is however, no disguising the scale of the additional spending and plans to spend €1.5bn gross in additional spending would not have been seen since the supplementary budgets in the boom years.

The spending measures will also likely excite new speculation about the timing of the election.

Taken together with the measures to be announced in next week’s budget, the Coalition’s new spending plans vastly boost the effects of the measures on the economy.

The plans to spend so much more on departmental budgets in current and capital spending this year were revealed in the White Paper on Estimates of Receipts and Expenditure published last night.

The extra spending in 2015 is achievable due to stronger-than-expected tax revenues this year which are in turn due to the strong economic growth, a spokesman for the Department of Finance said.

However, critics are likely to say that, by allocating an additional €1.5bn in gross spending in the current year, the Government is attempting to circumvent the strict new eurozone fiscal rules which limit the amounts of spending and tax giveaways governments can announce in any one year.

Those rules come into force at the start of next year and therefore apply to the spending and tax measures in Budget 2016.

The measures announced last night will likely at least match the total of all spending increases and tax cuts to be announced next week by Finance Minister Noonan and Expenditure Minister Brendan Howlin.

Mr Noonan had long said he will announce spending increases and tax cuts for 2016 totalling up to €1.5bn, to be split evenly between tax and spending measures.

In previous years, the Government had announced supplementary spending measures much later in the year.

Plans for additional expenditure this year are based on the huge amounts of extra tax revenue the exchequer has collected this year.

By the end of last month, the exchequer had €1.75bn more in its coffers than it had expected a year earlier.

The White Paper reveals the exchequer is likely to collect at least €2.3bn more in tax revenues through 2015 than it had expected. This will go to fund a reduction in the budget deficit, as well as on the additional spending measures.

After accounting for the additional spending, the budget deficit this year will fall to 2.1% of GDP.

That is easily below the EU mandated target for a budget deficit below 3% of GDP this year, but is still higher because of the new spending plans than some analysts had projected.

The White Paper shows the deficit in 2016 will fall to 0.9% before the costs of next week’s budget measures are taken into account. The 2016 budget deficit is therefore still likely to be targeted to come in below 1.5% of GDP.

Conall Mac Coille, chief economist at Davy Stockbrokers, had earlier this week reiterated his concerns about plans for supplementary budgets to meet spending over-runs and new policy initiatives.

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