Costly temptations run the risk of overheating economy
The Government has to get its priorities right and resist diverting resources into capital programmes, says Colm McCarthy
PASCHAL Donohoe’s first budget next Tuesday week will see only minor changes in taxes and expenditure.
If something close to budget balance in 2018 is required there is simply no leeway for significant spending increases or tax cuts. Government, opposition and the sizeable Leinster House press corps will work hard to sustain public attention through a desultory few weeks. The government will proclaim the generosity of the measures taken, the opposition will denounce their stingy neglect of the deserving, while the journalists will report breathlessly on disaffection amongst the government’s independent supporters and the imminence of splits, resignations and a fresh election.
The real action over the next few months will be in the capital spending plans, where the government has been hinting at a major expansion. There has been some restoration of capital spending in the last few years and minister Donohoe will doubtless give some indication of his intentions in the budget speech. A detailed capital plan is due before Christmas. EU budget rules include Exchequer-funded capital spending as part of the overall deficit and a hunt is under way for off-balance-sheet borrowing manoeuvres. This involves a double misunderstanding of the constraints on the capital programme. Off-balance-sheet debt is real debt, and has to be sustainable whether or not the EU statisticians count it properly. Some politicians have been talking about off-balance-sheet borrowing, via non-Exchequer vehicles or public-private partnerships, as if it was some kind of forgotten free money to be liberated from captivity down the back of the sofa at the Department of Finance.