Cantillon: an ecumenical look at budget strategy

So what exactly is the extent of extra money being injected into the economy in Budget 2016. As they said in Father Ted: "That would be an ecumenical matter."

The Government is trying to face both ways at once: promising the electorate there will be plenty in the budget, while beating budget targets and claiming to be “prudent”. Soaring tax revenue is allowing this to be achieved.

So the headline figure will remain that the budget is giving away €1.5 billion, split half and half between higher spending and lower taxes. But the supplementary estimates announced on Saturday show extra cash is being added to the economy. Planned spending levels for this year are being increased by another €1.5 billion in supplementary estimates: extra money allocated at the end of the year to meet holes in departmental budgets. It also increases the base spending figures heading into next year.

Economic analysts point out that the real level of budgetary stimulus might be better estimated at €3 billion: the €1.5 billion announced in supplementary estimates plus what will be announced today. The Government side argues that supplementary estimates are common – a total of €1.2 billion was added to 2014 spending, for example – and that the money is being allocated to meet spending pressures in areas such as health. Of course they are also going to pay for pre-election largesse, such as the Christmas welfare bonus which will be paid late this year. What we know is that the level of spending in 2016, as outlined in the budget, will be some €2.25 billion higher than the planned level of spending this year, before the supplementary estimates were unveiled. Add in the €750 million in tax reductions and you get to the €3 billion figure.

The cover for the Government is that the tax figures are so good that they will still be able to aim to reduce the deficit to below 1.5 per cent of GDP next year, from 2.1 per cent expected this year. But, one way or another, the level of extra cash being put into a booming economy is growing. As Davy stockbrokers said in a note, the new EU rules, which limit the growth of spending from one year to the next, gave the incentive for the Government to put as much as possible into the 2015 figures, thus creating more room for 2016. Hardly what the EU Commission bureaucrats intended. The key issue here is that pressures are starting to emerge on spending, fuelled by talk of economic expansion. Stuffing €1.5 billion in to departmental budgets in the last three months of the year does not look like a particularly strategic way to deal with this.