The Irish Fiscal Advisory Council (Ifac) has again taken aim at the Government’s budgeting. The council’s gripe is more with the method than the numbers.
Budgets are drawn up and delivered every October only to be torpedoed by spending overruns and supplementary estimates the following year, it claims.
This makes the council’s assessment of the budgets (at budget time) something of an Alice in Wonderland exercise.
In a pre-budget submission, published on Tuesday, the council is moderately critical of the Government’s proposed €8.5 billion budgetary package for next year, noting it is out-of-kilter with the medium-term growth potential of the Irish economy.
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Economists don’t like when budgets run faster than economies for obvious reasons: economic growth generates taxes that facilitate spending.
Ireland is, however, shielded from this dynamic because it has windfall receipts from corporation tax, expected to be in the region of €35 billion this year.
[ Irish Fiscal Advisory Council warns of ‘sizeable’ budgetary overrunsOpens in new window ]
Without these taxes, the Government’s projected €9 billion budget surplus this year would morph into deficit of more than €10 billion, equivalent to 3 per cent of national income.
However, the bigger concern for the council is that the actual budget package is likely to be much larger than what is announced on budget day.
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“Spending overruns have become routine and have repeatedly pushed spending above budget-day plans,” the council says.
Over the past decade, overruns have averaged more than €2 billion per year, it said, noting that the last time spending was at, or below, budgeted levels was in 2013.
The council wants to the Government to adopt a legally binding budgetary rule. The problem with the European Union’s fiscal rules is that they gauge everything through the prism of gross domestic product (GDP) which flatters the Irish economy and is no longer a good guide to domestic activity.
“Ireland needs its own domestic budgetary rule,” Ifac chairman Seamus Coffey says. “A carefully designed rule, set out in legislation, would provide a better guide for budgetary policy and help ensure that spending grows at a sustainable pace over time,” he says.
