Business Irish

Monday 23 July 2018

Dramatic health overspend could impact potential tax cuts in Budget 2019

Health Minister Simon Harris. Photo: Steve Humphreys
Health Minister Simon Harris. Photo: Steve Humphreys

Donal O'Donovan and Kevin Doyle

Dramatic overspending by the Department of Health this year has now delayed the prospect of a budget surplus and could eat into the potential for tax cuts next year, official figures show.

A €600m increase in Department of Health spending was the main contributor to a rapid rise in Government outlay in the first half of 2018 that pushed the public finances to a worse deficit than at the same time last year, even allowing for the sale of AIB shares in 2017, according to the figures which were released yesterday.

The near 9pc rise in health spending means Simon Harris's department had already increased spending in the first half of the year by more than the entire €500m increase allowed for in Budget 2018.

It means the prospect of tax cuts or planned spending increases in other areas for Budget 2019 are now in doubt, Finance Minister Paschal Donohoe said.

Mr Donohoe said he is seeking "to understand forensically" the reasons behind the health overspend and had met with the Health Minister (right) yesterday, in what is likely to be the first in a series of discussions on the issue.

Mr Donohoe admitted yesterday he could not rule out the possibility that the overruns will eat into the €800m available for new tax cuts and increased spending in Budget 2019.

"It will be later on in the year because we have to better understand all of the causes of the overspend versus the figures the HSE has published to date.

"We will have to know what those are in advance of the budget," Mr Donohoe said.

The minister said recruitment in the health service was one potential cause of the increased spending, with 318 new people hired every month since the start of the year.

Department of Public Expenditure and Reform officials said they are now looking at "how services can be delivered and how funding can be found without the need for cutbacks".

Read more: Rise in State's debt servicing costs helps push public finances to worse deficit than last year

"There is a job of work to understand what's driving the increased level of expenditure, (which) is higher than expected."

Among the options open to ministers are reallocating funding underspent in other areas, or tapping additional funding - most likely from the booming corporation tax receipts which continue to outperform expectations.

However, the International Monetary Fund, the European Commission, the Irish Fiscal Advisory Council (IFAC) and a host of other experts have warned against the Government using what may be a temporary surge in business taxes to fund permanent spending increases.

Mr Donohoe has indicated his wish to use the windfall to build up a rainy day fund.

The figures released yesterday show that across Government, gross voted current expenditure is up "an enormous 6pc" compared to the first half of 2017, according to Conall Mac Coille, chief economist at Davy Stockbrokers.

"This merely illustrates the reality that the Government has chosen to delay achieving a budget surplus, instead choosing to increase spending rapidly.

"This raises concerns that expenditure discipline is being eroded in the high-spending departments," he added.

The Department of Finance's official end of second quarter 2018 Exchequer statement records a shortfall of €823m - as spending increases outpaced even a healthy rise in tax income.

However, a surplus of €2.485bn recorded at the same point last year was distorted by the sale of AIB shares in June 2017.

Stripping that out, the Exchequer balance shows an underlying annual decrease of €323m - moving the country further away from a balanced budget or even a surplus, despite rising tax income.

The latest figures record tax revenues of €24.941bn collected in the first six months of this year, up 5.4pc on the previous year and in line with profile, or budget forecasts.

So-called voted expenditure was €23.682bn, below profile, but up 8.5pc in year-on-year terms.

However, non-voted expenditure of €5,516m was up 5pc year-on-year. That €261m increase was driven by a higher EU budget contribution and increased debt servicing costs.

Irish Independent

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