Ifac’s criticism and the Government shoulder-shrugging response

It’s now part of the budgetary calendar: the Fiscal Advisory Council’s criticism of the Government’s budgetary projections and the Government’s shoulder-shrugging response. Maybe that’s a little harsh, the Government has taken on board calls by the council for new, more transparent estimates of its future spending plans.

However, the council’s longstanding complaint, namely that the Government is consistently breaching its own spending targets courtesy of tax revenues that may disappear up the line, stands.

The watchdog’s latest missive contains two other elements. First, it deems the Government’s revised budgetary strategy, outlined in the summer economic statement, as too risky and potentially inflationary.

In July, the Government dumped plans to gradually move towards a balanced budget by 2025 in favour of running a sequence of budget deficits to fund greater current and capital spending in a number of areas, including housing and green infrastructure.

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The additional spending and the high debt ratios that would remain as a result would leave the public finances more exposed to shocks, particularly from unexpected shortfalls in growth, the council said.

‘Backfire’

It also cautioned that borrowing and ramping up spending during a strong recovery could “backfire”, leading to an acceleration in prices if capacity constraints, most notably in the construction sector, bite.

The second element of its criticism centres on the Government's promise to effectively expand public services, ramp up public investment and cut taxes all at the same time. "This avoids making hard choices and leaves the public finances more vulnerable to growth shortfalls or higher interest rates," Ifac chairman Sebastian Barnes said.

This will sting, as Fine Gael likes to present itself as the party of fiscal discipline, and frequently bashes Sinn Féin for pie-in-the-sky budgetary calculations. The council is effectively saying the Government is offering us the moon and the sun without a hope in hell of delivering.