Thursday 18 July 2019

Editorial: 'Government must heed fiscal warning'

Finance Minister Paschal Donohoe. Photo: PA
Finance Minister Paschal Donohoe. Photo: PA


Eight years on, it can become easy to forget why the Irish Fiscal Advisory Council (IFAC) was established in the first place. In short, the IFAC was set up on an interim basis in July 2011, and legally constituted the following December as part of the EU-IMF bailout, to counter what was called at the time the "green jersey agenda" which was identified as a contributor to the financial crisis.

To put on the green jersey, or the green jersey agenda, can be taken in a positive sense to put the national interest first, but also in a negative sense, as an excuse for improper action or obfuscation of facts.

Last week, the IFAC published its 16th assessment of the Government's fiscal performance and by any measure, it was a damning assessment. In a positive sense, the report could be read as the essence of putting the national interest first. It found that as a result of continuing strong growth, the economy had recovered from a deep crisis and was now operating near capacity.

Yet the current outlook was unusually uncertain. In short, it found debt remains high; noted the Government had allowed a pattern of spending drift; warned of risk in the event of a large spending overrun; pointed out that there had been no improvement in the budget balance; said the Government needed to make a "credible commitment" to not use potentially short-lived corporation tax receipts for long-lasting spending increases; repeated that a disorderly Brexit posed profound risks to the public finances; said there should be no additional within-year spending increases and advised that the Government should be cautious with the budget for next year. Stingingly, it added that the Government's medium-term plans were "not credible" and that it needed to "develop a credible medium-term strategy."

Notwithstanding the relatively careful language used by a statutory bodies such as the IFAC, the message is clear: the Government needs to get a firm grip on the national finances. Highlighted issues in relation to the over spend on the National Children's Hospital, the National Broadband Plan and other smaller projects, as well as the by-now annual overrun in the Department of Health budget, are deeply disquieting. While there is merit to many, if not all, of the projects concerned, and a requirement to finance a decent health service, it should not come at the expense of the overall national interest.

While undoubtedly major infrastructure projects such as the children's hospital and rural broadband can be argued to be in the national interest, these and other projects and outgoings should not come at a cost of running the country into the buffers again. Such an outcome would be truly unforgiveable.

The Minister for Finance, Paschal Donohoe has difficult and sometimes conflicting responsibilities to meet, but his primary responsibility, as he prepares a budget for next year against a background of a potentially disorderly Brexit, is the prudent stewardship of the country's finances. Mr Donohoe should make this clear to all of his Cabinet colleagues, at whatever level, in the weeks ahead.

Sunday Independent

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