Saturday 17 February 2018

EU warns public finances on a knife-edge

Donal O'Donovan and Emma Jane Hade

THE public finances are on a knife-edge that leaves the Government at risk of missing the key target agreed with Brussels to cut the deficit below 3pc this year, according to new figures from the European Commission.

Department of Health savings that could have been made this year have been put at "significant risk" by a delay in the start of talks with the drugs industry that were due to kick off last summer, the Commission said.

The latest EU reports show that run-away health spending and last year's decision to reduce household water charges could push spending above target, breaching EU rules and threatening Ireland's regained status as Europe's economic poster-boy.

Ireland must cut the deficit below 3pc by the end of 2015 or potentially face financial penalties under the EU budget regime introduced in the wake of the debt crisis.

But the EU thinks the budget deficit will be 2.9pc this year - leaving no margin for slippage.

It says overspending will increase to 3.1pc in 2016 without new spending cuts or tax hikes, according to a report published yesterday.

The Department Finance has forecast a deficit of 2.7pc in 2015.

Brussels' more pessimistic forecast is based on its expectation of lower domestic demand than officials here have factored in.

If the Commission is right, a decision due in April from European statistics agency Eurostat could make or break efforts to hit the target.

However, Enda Kenny said yesterday that he was not concerned by the report from Brussels.

"There is nothing new in the report . . . The recovery here is fragile and incomplete and that's why it is important to manage expectations properly," the Taoiseach said.

He stood over the decision to reduce water charges taken last year, saying the Government believes it will not affect the formal budget treatment of Irish Water.

"The Government has listened very carefully to the concerns and anxieties of the people around the country, and we have introduced a rate of charge which is affordable and very fair so that also includes the opportunity to satisfy the terms of the market test which we expect we'll measure up to."

Eurostat will decide whether spending by Irish Water counts towards overall Government expenditure, or if the new utility should be regarded as a stand alone company like the ESB, as the Coalition hopes.

The question hinges on a so-called market corporation, based on the share of income the utility gets from the State, which will be more than planned after ministers rowed back on the planned levels of residential water charges.

The climbdown on water charges last year could also hamper supply of new homes, because Irish Water needs a sustainable off-balance sheet financing structure to raise funds to develop crucial infrastructure, the report said. The "in-depth review" of Ireland's finances says constant spending overruns are a sign the Irish healthcare sector may need "deep structural reform".

"Expenditure overruns have been recurrent in the past few years, which shows that while efficiency gains have been achieved in recent years, the health system may have reached a point beyond which containing expected cost increases would imply deeper structural reforms," the report said.

Government health spending is higher in Ireland than the EU average at 8.7pc of gross domestic product(GDP), but we have fewer doctors and fewer hospital beds, the report said.

Despite spending more, our health outcomes are only in line with the EU average, the report adds. While some reforms have happened - including a big increase in the use of cheaper generic drugs - the report warns that delayed negotiations between the Department of Health and drugs producers over the cost of patented medicines "puts the achievement of significant savings in 2015 at significant risk".

John Drennan's Guide to Politics - Spring 2015

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Delays in implementing the planned shift to a universal health insurance model could have a negative impact on the health insurance market.

The report notes that Ireland's current two-tier system of overlapping private and public health provision is unusual and complicated, by European standards.

While Ireland is no longer in a formal bailout we remain under more "enhanced" surveillance than most EU member states, and the Government finances are still subject to greater scrutiny than our peers.

Irish Independent

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