The Government must break the cycle of overspending because Budget 2020 is “close to the limit of what prudent policy should be”, the Irish Fiscal Advisory Council cautioned today.
he State’s budget watchdog published a visual guide to Budget 2020 that highlights the Government’s record since 2015 of overshooting already expansive spending plans.
IFAC chairman Seamus Coffey said Budget 2020 did contain key welcome features, particularly a recognition of how this year’s €400m cost overrun on health would impact next year’s plans. Previous budgets excluded the impact of cost overruns and mid-year supplementary spending.
“We think it’s positive that Budget 2020 includes the 2019 overruns,” Mr Coffey told Independent.ie. “Because 2018 was a particularly poor year for budgetary management in Ireland, with too many overruns, and this year looks much the same. Budget 2020 appears to be running close to the limit of what a prudent policy should be.”
He noted that the Government originally budgeted in 2018 to increase spending by 3.8pc but by year’s end had spent 6.7pc more. He said 2019 appeared on a similarly ill-disciplined course, with the November collection of corporation taxes from a handful of multinationals expected to come to the fiscal rescue once again.
Budget 2020, Mr Coffey said, was “more complicated than usual” because of its central commitment to spend an extra €1.2bn in event of a no-deal Brexit. Including that conditional spending would mean a €5bn increase in Government expenditure from this year, nearly 7pc higher.
But if a no-deal is avoided, he said, Budget 2020 would stick unusually close to IFAC’s own model of prudence, with an underlying increase in spending nearer €3bn once tax increases and the effect of 2019 overruns were factored in. IFAC in the summer had called on the Government to stick to a €2.8bn increase.
“Including the 2019 overspending in Budget 2020 is a welcome step forward,” he said. “The overruns have been built into the base, whereas in previous budgets the Government has consistently failed to adhere to spending ceilings as were set out, and this meant fiscal policy was tipping towards an unsustainable path.”
Today’s IFAC publication cautions that Budget 2020 is premised on an economic slowdown fuelled by a crash-out Brexit – but the underlying Irish economy “faces potential overheating” if a disorderly Brexit is avoided.
“Official forecasts suggest that the Irish economy is close to its potential. That is, there is little scope for activity to grow at a fast pace without resulting in overheating,” it said.
IFAC once again highlighted the risk to public finances posed by the concentrated tax windfall from Ireland’s hosting of tech giants, with corporation tax in 2018 rising to a record 18.7pc of the State’s entire revenue. Yet it noted that Government projections presume that this source of income will keep rising through 2024.
The summary comes in advance of IFAC’s next Fiscal Assessment Report due to be published next month.