Varadkar’s budget surplus claim rebuked as ‘unfounded’

The Irish Fiscal Advisory Council (Ifac) has hit back at claims by Tánaiste Leo Varadkar that it failed to predict the government would achieve a budget surplus back in 2018 and 2019.

In a tweet, the budgetary watchdog said Mr Varadkar’s claim was “unfounded” and that its role was “to assess official forecasts and highlight risks” and not to make fiscal forecasts.

It also noted the government’s surpluses were driven “by unexpected corporation tax receipts”.

“Without these positive surprises, the budget would not have been in balance in 2018 and 2019, given spending outturns and health overruns,” it said.

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However, a spokeswoman for the Tánaiste cited a 2018 Ifac report that claimed the government’s commitment to run surpluses was “vague and inadequate.”

She also noted that in 2019, former Ifac chairman Seamus Coffey had said: “While the intention to run a surplus might be laudable, we do not know whether it will be delivered.”

The Government ran a budget surplus – the first in over a decade – of €325 million in 2018 and a surplus of €1.8 billion in 2019.

However, this period of budgetary surpluses was washed away by the pandemic and a massive increase in Government spending. As a result, the Government ran a deficit of €19 billion last year and is expected to run a similar-sized deficit this year.

Pressures

In an interview with RTÉ radio's This Week show, Mr Varadkar was asked about pressures on public spending and Ifac's recent criticism that the Government's financial projections lacked credibility.

“What the fiscal advisory council has often said is that we underestimate demographics . . . and that’s one of reasons why I’m saying we need to be honest about the health budget staying big,” he said.

“It’s not going to be possible to try and reduce it because we have an ageing population and growing demand,” he said.

Mr Varadkar said while Ifac was right on some things “they’re not right on everything”.

He added that “this is the same fiscal council that told us we wouldn’t balance the budget and we did it three times . . . we’ll take on board their advice but they’re often wrong.”

Ifac launched a stinging attack on Government budgetary policy last month, claiming its projections for spending and tax lacked “credibility” and failed to take account of future policy commitments.

Forecasts

It described the financial planning as “piecemeal” while claiming the Government was not providing realistic guidance to the public and therefore increasing the risk of things going wrong.

“There are clear risks to the forecasts: spending is very likely to grow at a faster pace than is shown, and the overreliance on corporation tax to fund ongoing spending looks set to continue,” it said in its latest assessment of the Government’s budgetary position.

Back in 2019, Ifac – as part of its general assessment of the risks facing the Irish economy – warned that strong growth in the domestic economy could result in overheating.