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Sunday 22 September 2019

'Prudent' Paschal's Budget is leaving us exposed to repeating mistakes of past

The Irish Fiscal Advisory Council warned there were “echoes of policy mistakes of the past” in Paschal Donohoe’s budgetary plans. Photo: Gerry Mooney
The Irish Fiscal Advisory Council warned there were “echoes of policy mistakes of the past” in Paschal Donohoe’s budgetary plans. Photo: Gerry Mooney

David Chance and Laura Larkin

Ireland risks heading into the next economic downturn without sufficient budget firepower, after continued overshooting on spending.

The Irish Fiscal Advisory Council (IFAC) warned there were "echoes of policy mistakes of the past" in Paschal Donohoe's budgetary plans.

The council was set up to provide an independent assessment of Government forecasts as part of the EU and IMF bailout. It says in its latest report that the 2019 Budget was not "conducive to prudent economic and budgetary management".

Council chair Seamus Coffey warned: "We don't think the risks at present are as high as they were in 2006-07 but there are echoes of it."

Citing persistent spending overruns, particularly in healthcare, the report said plans for next year showed a Government spending increase of €4.5bn, well beyond a level of €3.5bn that the council had judged appropriate based on sustainable economic growth rates.

The warning comes as it emerged health, housing and Garda overtime are to share in €862m in additional funding this year.

Finance Minister Paschal Donohoe approved substantial additional funding for the Departments of Health, Housing and Justice.

The extra funding for health will cost the Exchequer €655m - less than the expected €700m originally mooted.

Meanwhile there will be an additional €60m for homelessness services, €60m for social housing and €10m to cover the cost of storm damage allocated to the department of housing.

An extra €77m has been approved for the Department of Justice, the majority of which (around €59m) relates to pay and overtime for gardaí.

Mr Coffey stressed that the council was not calling for a return to austerity. However, it wants the budget process to be sustainable beyond the bumper tax receipts and strong economic growth seen this year.

"Repeated failures to prevent unbudgeted spending increases have left the public finances more exposed to adverse shocks, with the budget balance in deficit rather than surplus," IFAC said.

The Finance Minister characterised his 2019 Budget as prudent, managing both tax giveaways and spending while salting away €500bn in a "rainy day" fund.

The coffers, however, were swelled by a €700m surge in corporate tax receipts, allowing Mr Donohoe to claim progress towards a budget surplus while spending more and delivering tax cuts.

The council's assessment of Budget 2019 also shows that it is overly reliant on one-off company tax revenues.

Over the past 15 years, apart from the crisis years of 2007-09 and the current period of 2017-18, Government revenues, excluding volatile company tax income, grew more quickly than spending.

"The lack of improvement in the budget balance in the last three years partly reflects that Government expenditure growth has accelerated since 2016, while revenue growth (excluding corporation tax) has been relatively flat," the council said,

The €4.6bn rise in primary spending is being driven in large part by a rise in the cost of the Government workforce, which is up €1.3bn.

Mr Coffey declined to criticise plans outlined by Taoiseach Leo Varadkar to raise the level at which the higher rate of tax kicked in to €50,000 over the next five years, which was announced at the Fine Gael Ard Fheis and widely seen as heralding an election. If implemented in full, the measure would cost €600m a year versus current levels.

The council will present its report to the Government and to the Oireachtas in the coming weeks.

Irish Independent

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