Election Lexicon: Fiscal space

We translate jargon so you don’t have to

The “fiscal space” is political shorthand for money the next government may have available for the purposes of tax cuts or spending increases.

It’s a wholly inelegant way of saying “largesse”, but it sounds kind of serious and appears to be shrouded in a sense of economic rigour. For politicians, of course, this is exceedingly valuable.

Instead of casting the raw political promise as the raw promise it is, the “fiscal space” description dresses it up as something deeper and more serious.

Thus the onset of the election campaign has been accompanied by politicians of all stripes outlining their vision for responsible allocation of “fiscal space” to this and that.


In the simplest terms, however, they are talking about money.

Here’s an example. In Budget 2016 last October, the outgoing Government cut tax to tune of €750 million and introduced new programmes costing another €750 million. That’s a budgetary package of €1.5 billion, on top of existing measures to collect well in excess of €40 billion in tax and to spend more than that again. For the purposes of the last budget, however, the “fiscal space” was €1.5 billion.

If all goes to plan

When politicians talk of “fiscal space” somewhere between €8.6 billion and €12 billion being at the disposal of the next government, they are referring to money which might be available over the course of the next five years if all goes to plan.

The differences between the actual amounts mentioned by individual campaigners flow from differences in the way they tot up the figures.

Some make allowances to build in increased budgetary allocations to compensate for expected inflation or the likely increase in demand for services as the population grows older. Others do not.

In this context, political divisions are inevitable. For every politician who says “my fiscal space is bigger than yours”, a rival is certain to say “that’s because you’re assuming no-one will grow old in the next few years”.

But there is another dimension - and this is crucial. After the horrors of the crash, all governments of the State are obliged under domestic and European law to adhere to stringent budget targets agreed with EU partners.

As compliance must be the starting point for the annual budget, money for tax cuts or new spending becomes available only after the rules are met. The rules are designed to ensure steady deficit reduction and the repayment of the still-expanding national debt.

‘No crazy stuff’

In this sense, promising “fiscal space” largesse can be cast as a sensible kind of undertaking because the expression assumes that binding rules are met first. In other words: “No crazy stuff, we’ll stick by the rules.”

Yet that's not the only economic assumption in the "fiscal space". This too is crucial. Any time the expression is uttered, the amount of money mentioned is predicated on numerous assumptions vis-à-vis economic growth in Ireland and the world and many other variables including the volume of tax paid into the exchequer at any time.

It follows that the real question in the election centres on the credibility of political plans to manage a growing but highly-indebted economy whose recovery after a series of drastic setbacks remains fragile.

In a sense the “fiscal space” to come is the reward for secure, flexible economic management which mitigates risks as they arise. It follows that there would be no “fiscal space” without sound management.