Fiscal council in stinging attack on Government’s budgetary policy

Watchdog claims Government is failing to manage public finances in prudent manner

Seamus Coffey,  chairman of  the Irish Fiscal Advisory Council, said the Government was growing spending at an unsustainable rate and failing to use the upswing to insulate the economy against the next downturn. Photograph: Dara Mac Dónaill

Seamus Coffey, chairman of the Irish Fiscal Advisory Council, said the Government was growing spending at an unsustainable rate and failing to use the upswing to insulate the economy against the next downturn. Photograph: Dara Mac Dónaill

 

The State’s budgetary watchdog has strongly criticised the Government for “repeatedly” missing its own financial targets and for failing to manage the public finances in a prudent manner.

In one of its most hard-hitting assessments to date, the Irish Fiscal Advisory Council said improvements in the Government’s underlying budgetary position had effectively stalled since 2015, despite the favourable economic climate.

It claimed that Budget 2019, which allows for a €4.5 billion spending increase next year, was €1.1 billion above a target the Government set down only four months earlier in its summer economic statement, and was “not conducive to prudent economic and budgetary management”.

The last time the Government breached its budgetary target to this extent was back in 2015 prior to the last general election.

“It goes beyond the limit of €3.5 billion for spending increases and tax cuts for 2019 that the council had assessed as appropriate prior to the budget,” the watchdog said.

In its report, the 15th since its inception in 2012, the council said repeated failures to prevent “unbudgeted spending increases”, most notably in the area of health, over several years had left the State’s finances exposed to the next downturn.

Plug the hole

The Cabinet on Tuesday night approved a €645 million supplementary budget to cover overspending in the HSE this year, using a substantial portion of the State’s corporation tax windfall to plug the hole in its health budget

The measure was agreed by Ministers despite the previously expressed concerns of a number of Ministers about continued overspending in health. The HSE has now exceeded its allocation by almost €2 billion in the past four years. It said most of the deficit is the result of Government decisions over which it had no control.

This year’s overspend has been blamed on higher payouts in medical negligence cases by the State Claims Agency, a shortfall in private patient income, higher spending in hospitals and on disability services and the additional costs associated with Storm Emma earlier this year.

“Failures to prevent unplanned spending increases has meant long-lasting increases in spending that are difficult to reverse and that represent a repeat of policy mistakes of the past,” the council said.

Modest increases

“Pressures in the health sector and elsewhere should be funded through sustainable tax revenues or decreases in spending categories elsewhere,” it said.

The budgetary agency also claimed the Government’s medium-term budgetary plans, which include only modest increases in health and other spending categories up to 2020 at a time when demands on the public purse were increasing rapidly, were not credible.

The rebuke comes on the back of a warning last week from the Economic Co-operation and Development that another possible boom-and-bust cycle may be developing in the Irish economy.

‘Numerous risks’

While the outlook for the Irish economy in the short-term remains strong, a slowdown in the coming years is “inevitable and there are numerous risks”, the fiscal advisory council warned.

It said significant overheating pressures could build up “if a faster-than-expected, though welcome, pick-up in housing construction materialises”. The council also warned that Brexit, the exact outcome of which remains steeped in uncertainty, may prove to be more costly than assumed.

Chairman Seamus Coffey said the Government was growing spending at an unsustainable rate and failing to use the current upswing to insulate the economy against the next downturn.

“The Irish economy is one in which circumstances can change quite rapidly and we’re not using the positive upswing to build those fiscal buffers.”

While risks to the economy are not as high as they were in 2006 and 2007 “there are echoes of it”, he said.