Wednesday 26 June 2019

David Chance: 'Report shows budget realism is necessary but there's no reason to fear fiscal Armageddon'

 

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David Chance

If the Irish Fiscal Advisory Council has called it right, the Government could face a day of reckoning over the budget.

Years of high spending have been financed by abnormally large corporation tax receipts that have swelled State coffers by some €12.3bn more than expected since 2015, the council says. That has allowed the Government the luxury of funding repeated health overspending to the tune of €500m a year as well as to pledge billions for the National Broadband Plan and swallow €1bn in cost overshoots for the National Children's Hospital.

Yet it is also true that Finance Minister Paschal Donohoe brought in a budget surplus for the first time since 2007 and while, for example, the nurses pay award was larger than expected it also contained performance guarantees that are good value going forward.

It is also true the council's warnings are based on assumptions in economic models and are not predictions or definitive numbers.

There is simply no indication the revenue stream from corporate taxes will collapse any time soon; if anything it would appear the multinationals that have made Ireland their home are still investing and still hiring.

It is the council's job to warn of potential pitfalls and the Government's job to decide spending priorities.

Mr Donohoe has pledged to get health overspending under control and the evidence of the monthly Exchequer data so far this year has shown that spending is on target, although it is probably too early in the year to tell.

While a deterioration in finances could place State debt on an upward path once more, the most important factor in reducing debts, which still stand at a high level, is strong economic growth.

With the interest rates set by the European Central Bank stuck at zero and Irish bond yields standing at record lows, infrastructure investments by the State make particularly good sense at the moment.

The main takeaway from today's report is the Government needs to inject a dose of realism into its forecasts rather than the idea that fiscal Armageddon is just around the corner.

Irish Independent

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