Department of Finance fires warning shot at parties over economic risks
Dangers to growth more acute now than at any time since height of the global crisis
The dangers are more acute now than at any time since the height of the global crisis, the department warned. For one thing, the Brexit referendum looms. Photograph: Andrew Yates/Reuters
After many weeks of fruitless talks over the formation of the next government, the Department of Finance has fired an unambiguous warning shot over of heads of bickering politicians.
At issue in the increasingly tedious debate between Fine Gael and Fianna Fáil is the vexed matter of Irish Water.
In the economic scheme of things, however, this is a sideshow. The word “water” is not mentioned once in the department’s Stability Programme Update, an annual filing to Brussels in which it sets the scene for the budget negotiation to come
Yes, a higher growth rate is in prospect this year and decent growth is foreseen for 2017. Yes, political whispers say that means more money is at play in the October budget. But that’s not really the point. To be precise, numerous risks in the outside world present serious threats to the fastest-growing economy in Europe.
The dangers are more acute now than at any time since the height of the global crisis, the department warned.
For one thing, the Brexit referendum looms. The document also reflects anxiety that the woes of China and an assortment of other emerging markets could push the world economy towards recession.
“While it is not the central scenario, it is crucial from an Irish perspective to be cognisant of the risks posed by a sharper-than-assumed global slowdown,” it states.
Not that we’ve heard any of that in circular political squabbling since February. On the contrary, the election debate and all the talk in the shadow of its inconclusive result has been predicated on the continuation for years to come of uninterrupted growth in Ireland.
Risks abound, even though the department’s assessment points to a record of solid fiscal achievement in recent times. This puts into perspective the prospect of the headline budget deficit falling to 1.1 per cent of gross domestic product this year, down from 2.3 per cent in 2015 (after a statistical ruling) and a 0.1 percentage point improvement on the budget projection from October.
Despite an upgrade to the 2016 growth forecast, tax and expenditure projections are unchanged from the budget and spending pressures are evident.
“While the Department of Public Expenditure and Reform will do everything possible to maintain expenditure within existing allocations, it is likely that over the course of the year, voted spending pressures amounting to c.¼ per cent of GDP could materialise; at the same time, there is potential upside to the revenue projections,” said the department.
“It is envisaged that this can be accommodated within the fiscal rules.”
Even though strong excise duties and corporate tax collections were noted, the document said income tax and VAT collections were “somewhat disappointing” in the first quarter of the year. Thus a sense of caution prevailed, even amid the possibility of tax forecasts being exceeded. “While the performance in the first three months of the year is generally in line with expectations, a number of risks remain, both specific and more general, to the tax forecast.”