Ministers ‘shocked’ by October budget warnings

Passing the next budget in October is set to be “very difficult” in light of new spending warnings from Public Expenditure Minister Paschal Donohoe, according to ministers.

They were left “bemused and shocked” by his warnings in recent days, the Irish Examiner can reveal.

Ministers will have to make cuts to existing services if they want to pay for new spending plans next year, they were told.

It has emerged Mr Donohoe’s decision to bring forward public sector pay increases by several months, at a cost of €120m extra a year, will have to be met by “efficiencies” in existing budgets.

This announcement was met with gasps at the Cabinet table last Tuesday, it has been confirmed.

There is now mounting concern about “slippage” in the public finances and the Government’s ability to pass the budget in October.

A Cabinet memo drawn up by Mr Donohoe for ministers, and seen by the Irish Examiner, reveals that the pending public sector pay deal, as well as matters already announced, have hoovered up any available extra monies.

The memo says having to pay for a new public pay deal, as well as costs of the housing and homeless initiative and measures from the budget carrying over into next year, means any additional measures must be met from existing resources. In layman’s terms, this means cuts to existing services.

The Cabinet memo, to be discussed by ministers tomorrow, states that “increasing and competing public service demands” mean managing expenditure is likely to be “challenging”.

Mr Donohoe says ministers should set out their highest priority policy proposals for Budget 2018 no later than March 16.

He states they should also consider “potential resourcing requirements and impacts” of any new proposal.

“Given the limited availability of fiscal space, new proposals will be largely funded from reprioritisation of existing resources away from lower priority, less efficient and less effective policy areas,” states the memo.

“These areas will be identified and options for Government generated through the spending review process.

“However, the totality of this money is not necessarily available for spending on new policies as there are particular pre-announced commitments and revisions that will have to be accounted for from the fiscal space.

“The carryover cost of the Budget 2017 measures into 2018 will have to be funded out of the net fiscal space if savings cannot be found to cover these costs. In addition, revisions to the medium-term growth forecasts and the costs of capital commitments such as the action plan for housing and homelessness will likely impact on the funds available for new policy measures.

“Any costs arising from a pay agreement will also have to be met.”

Mr Donohoe said the money for pay rises would be found through savings across all departments. However, he admitted he does not currently have the funding to pay for the agreement reached with unions.

According to his department, Mr Donohoe said the estimated €2.2bn fiscal space forecast for the next two years, was “not necessarily available for spending on new policies” because of the spending need earmarked for “particular pre-announced commitments”.

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