The Government today reveals its summer economic statement, looking to hike spending but balance the books, writes Daniel McConnell
YESTERDAY, as usual, Cabinet ministers made their way into Government Buildings for their weekly meeting.
Still getting used to life under Taoiseach Leo Varadkar, they were facing into a monster meeting as the Cabinet had a 42-item agenda to get through.
Such heavy agendas are the norm towards the end of a Dáil term, but among the various items discussed and approved was the summer economic statement.
That document, which will set out the parameters of the budget in October, will be formally launched today and we will know how much money Finance and Public Expenditure Minister Paschal Donohoe will have to spread around.
What we know is that the expectations of ministers have been dampened given the mounting pressures on the public finances and the net additional spending of €350m (post-Lansdowne Road II) will be insufficient to meet that pent-up demand.
At a budget-focused Cabinet meeting last Thursday, Mr Varadkar and Mr Donohoe made it clear that the first priority of Budget 2018 will be to balance the books.
Mr Donohoe is known to feel such a milestone is critical in proving Fine Gael’s credibility when it comes to managing the economy.
He is also battling huge competing interests for the very limited amount of additional spending available to him.
“Toward the end of the year, Finance will look and see is there any money knocking around, but first call on that extra money will be water. Before you even get to refunding customers, the provision of water is paid for up to a point, but because the suspension of water charges has exceeded the original nine-month period, there is a hole that needs filling,” said one minister.
The overall fiscal space announced today will be €1.2bn, but with €200m in additional public-sector pay and a large number of items carried over from last year, the net fiscal space is just €350m.
As we reported on Monday, by delivering a balanced budget in 2018, Ireland will no longer be subject to strict European rules on spending and the fiscal space opens up dramatically, particularly in relation to capital spending.
This means we will see a huge emphasis today from Mr Donohoe on the capacity of the Government to fund, in the medium term, several key projects like the M20 motorway between Cork and Limerick and the controversial Metro North project in Dublin.
“At Cabinet last Thursday, Leo and Paschal have placed a great emphasis on connecting rural and regional cities. The plan will be like a new Transport 21 but across all of Government, if rebuilding Ireland hadn’t been used in the housing area, it would be perfect for this,” said one minister.
The summer economic statement today will be limited in detail and will not refer to specific projects. This is because the actual size of the fiscal space won’t be firmed up until September.
“We are more confident now given the quarterly tax returns at the end of June than we were,” added the minister. “Government is determined not to put different figures out in the public domain every five minutes so we will take stock in September was the message from the Department of Finance at Cabinet.”
Unlike in recent years, instead of the Government having a few hundred million to play around with, we are now talking about billions over a sustained period of time and that is while being compliant with the fiscal rules. “You see, once we balance the budget, the apron strings are loosened significantly. We don’t have to answer to Europe at that stage,” added the minister.
Ministers were also told there is no point waiting until 2019 to begin projects. “You can start a lot of the planning design phases in 2018 so you can be ready to rock when the big money falls. At Cabinet there was a fair bit of discussion about roads and connecting rural and regional areas by road,” said the minister.
What we also know is that the big spending departments in terms of capital spend — Transport, Education (particularly higher education, which has been starved of funds), and Health — are all likely to be given priority.
The statement will also refer to the need for sound and sustainable public finances, managing expenditure to ensure a maximum return of public finances, increasing capital expenditure, and reforming the tax system. The plan will ensure balanced regional growth and the opening up of access to finance, especially for small and medium enterprises.
GDP growth is forecast to be 4.3% this year, projected to fall to 3.75% next year, with job creation decreasing slightly to 50,000 new places. The Government said its figures for the summer statement would be based on exchequer data as well as the EU’s forecasts.
Economist Colm McCarthy at the weekend described the summer economic statement and budget as likely damp squibs. The word from those in the know last night was that there will be no surprises today.
It will not be a dramatic event, but being able to increase spending while balancing the books is still a credible achievement and an important step forward when you remember where we have come from.
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