Sunday 17 November 2019

'Prudent' Paschal splashes more cash than Cowen

Finance Minister Paschal Donohoe
Photo: Collins Photo Agency
Finance Minister Paschal Donohoe Photo: Collins Photo Agency

David Chance

Budget spending as a share of the size of the economy is higher under Paschal Donohoe than it was under his predecessor as Finance Minister Brian Cowen, according to an analysis by the Irish Independent.

While the Minister for Finance has favourably compared the rise in public spending on his watch to the run-up to the last bust, the numbers show a different picture.

Analysis of the spending plans for 2020 and 2021 contained in the Budget paints a more mixed picture, compared with the 2005-07 period that immediately preceded the collapse in State finances.

For 2020 and 2021, Government spending is forecast by his department to come in at €70bn and €71.8bn respectively.

Those numbers are equivalent to 44.5pc and 44.0pc of modified gross national income (GNI*), the State's preferred measure of economic output, that strips out the effect of multinationals for a truer picture of the country's wealth.

Back in 2005, the Government spent €54.99bn, rising to €59.74bn in 2006 and €67.56bn in 2007, according to the department's stability reports, which are submitted to the European Union to assess the State's compliance with budget rules.

As a proportion of GNI*, the figure for 2005 was 39.4pc, rising to 39.7pc in 2006 and 42.8pc in 2007. So, relative to the national performance, which essentially determines the ability of the economy to support Government spending, the proportions are 1.2-5.1 percentage points of GNI* more than they were in the three years before the crisis hit.

Spending has grown thanks to bumper corporation tax receipts that have allowed the Government to cover roughly €500m a year in health overspending, as well as to ramp up investment in infrastructure.

That has triggered criticism from budget watchdog the Irish Fiscal Advisory Council that one-off receipts were being frittered away on current spending, rather than saved or used to reduce the State's €200bn-plus debt pile.

Paradoxically, the State was listed by anti-austerity campaigners as one of 19 countries where spending had fallen as a share of gross domestic product since before the crisis.

According to a report titled 'Austerity: The New Normal', well-known campaigning groups who oppose IMF-led spending cuts, such as the Initiative for Policy Dialogue, the International Confederation of Trade Unions and the Bretton Woods Project, listed Ireland with the likes of Angola, Belarus and Iraq.

"Nineteen of these countries are expected to be spending more than 5pc of GDP less, on average, during the third shock, compared to expenditure levels during the pre-crisis period," said the report, which was released to coincide with the International Monetary Fund meetings in Washington this week.

The campaigners blamed a change of heart at the IMF in the wake of the financial crisis to embrace "fiscal consolidation", which led to swingeing budget cuts here and a wave of job losses.

"The second phase of the crisis, beginning in 2010, saw a total policy reversal - a 180-degree shift in governments' public expenditure. The sovereign debt crisis in Europe turned public attention to government spending, as if it had caused the crisis," the report said.

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