Budget a missed chance to cut debt, says watchdog
THE state's budgetary watchdog has hit out at the Government over Budget 2015, saying it was a missed opportunity to further fix the public finances.
The Fiscal Advisory Council said the State's debt level will now be €10bn higher in 2018 because the Government "backtracked" on plans to impose a further €2bn in austerity in Budget 2015.
And just days after the Government was forced into a new water charges plan amid mounting public anger, council chairman John McHale raised concerns that political pressures risk a return to the economic mistakes of the past.
"A more general concern is that politics may again be leading us to make the kind of mistakes that have been made with fiscal policy in the past, that has caused so much damage to the economy," he said, at the launch of the Council's latest assessment.
"I think it's hard to avoid the conclusion ... that the political pressures that led to the mistakes in the past are building again."
But Mr McHale said he believed that there was now a tougher budgetary regime of checks to help avoid a repeat of those mistakes.
Last month, Finance Minister Michael Noonan unveiled an expansionary Budget of about €1bn, made up of €420m in tax measures and an increase in spending of around €630m, compared with the original plan of more austerity totalling about €2bn.
The Department of Finance estimates that the deficit will be cut to 2.7pc of the value of the economy next year - well within a crucial EU target. The council said another austerity Budget would have cut the deficit to 1.5pc, and brought the government accounts close to balance by 2016.
And Mr McHale said that because of the softer-than-expected Budget, debt is expected to peak at a level roughly €10bn higher than would have occurred if the Government had stuck to its plan for a final austerity Budget.
The council's chairman said he recognised the pressures the public was under, but it was his job to point out the risks.
"We absolutely understand that people are fed up after seven years of austerity measures, squeezes on their incomes both as a result of the budgetary measures but also of the recession itself," Mr McHale said.
"On the other hand, part of our job is to point out that we're still spending considerably more than we've brought in revenue."
The Troika last week warned that the Government's new water charges plan puts the country at risk of missing its Budget target next year and plunging the country into another round of tax hikes and spending cuts.
The council wouldn't get involved in the water charges controversy, but it said that by not doing the full €2bn of tax hikes and spending cuts in the Budget, an opportunity to create a large buffer to guard against unexpected economic shocks had been missed.
It also said that given the scale of changes to the budgetary plans over the last year, Budget 2015 should have provided an updated plan for the coming years but failed to do so.
Mr McHale also said that Government also hasn't explained how spending pressures would be dealt with in the coming years.
"This is a particular problem for departments such as Health and Education, reporting large demand pressures over 2015 to 2017, and given the current very low level of capital spending," the Council said. The Council also signalled that it backed the Central Bank's new mortgage deposit plan.