Wednesday 26 October 2016

Government fiscal projections "not realistic" - budget watchdog

Published 26/11/2015 | 09:14

Professor John McHale of the Fiscal Advisory Council
Professor John McHale of the Fiscal Advisory Council

There is no realistic medium-term plan for the public finances, and the Government's expenditure projections aren't realistic either, according to the Fiscal Advisory Council (FAC).

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In a post-Budget report published this morning, the FAC said "the fiscal forecasts in Budget 2016 do not provide a meaningful anchor for medium-term budgetary planning."

"Expenditure projections imply a large decline in the ratio of government spending to GDP of over 5 percentage points by 2021 that is not realistic given underlying expenditure pressures that are likely to emerge in the coming years.

"The absence of a realistic medium-term plan for the public finances is of serious concern, in particular given the weaknesses in the Government’s new system of multi-annual expenditure ceilings".

The FAC chairman John McHale said the Government had deviated from prudent economic management in the Budget, comparing Coalition policies to those of the boom era. The FAC report says the multi-annual expenditure ceilings are not being implemented effectively owing to continuous upward revisions to spending.

The report says the decision to increase Budget 2015 spending by €1.5bn in supplementary estimates "keeps the deficit and debt" higher than could have been achieved and provided an unnecessary stimulus to a fast-growing economy.

"The Government’s projections for the deficit and debt in Budget 2016 from2017 onwards are based on mainly technical assumptions and do not present a realistic picture of the public finances over the medium term. The Budget forecasts again show an implausibly large decline in the ratio of non-interest government spending to GDP over the medium term," the report says.

"The forecasts fail to show how the Government intends to use the fiscal space that will be available in the coming years to reduce the deficit and debt while implementing its stated policy commitments and accommodating spending pressures. Analysis in this Report shows that funding current levels of public services in future years and accommodating likely expenditure needs would absorb the majority of the estimated fiscal space available after 2016. Further tax cuts would make it very difficult to fund these expenditure pressures while complying with the rules."

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