Fianna Fáil broadly agrees with summer statement spending thrust

Fianna Fáil, whose acquiescence is needed to pass budgetary policy, has broadly agreed with the spending approach outlined by the Government, while claiming it had missed its fiscal targets.

Michael McGrath, the party’s finance spokesman, and Barry Cowen, its public expenditure spokesman, both repeated that the October budget must have a focus on health and housing.

However, Mr McGrath claimed Mr Donohoe had missed his own target to reach a balanced budget, under the European Union medium-term objective (MTO) rules, adding that this had reduced his scope for spending.

“The failure to meet the MTO in 2018 has impacted negatively on the available resources in 2019,” the Cork South-Central TD said. Mr Donohoe has defended his figures as “robust”.

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Mr McGrath also said the “foundation stone” of the October budget must “involve practical measures to tackle the acute crises the Government has allowed to develop in housing and in parts of our health service”.

It is expected that Fianna Fáil will push for measures on social and affordable housing, in particular, with Mr McGrath agreeing that about €800 million is available for new budget-day measures.

‘Political decisions’

Labour Party finance spokesperson Joan Burton disagreed with Mr Donohoe's approach and said he was making "political decisions" in limiting the amount for budget-day spending to €800 million.

Ms Burton said: “The Minister for Finance has decided to commit half a billion to a rainy-day fund and leave a further €900 million unspent.

“These are policy decisions the Minister is making that are also deliberately misleading the public debate.”

Mr Cowen said some of the pre-existing commitments in Mr Donohoe's calculations include €1.5 billion in capital projects, but added there was no detail of what this meant "in terms of bricks and mortar".

There was mixed reaction from business and economic commentators. “What this is saying is that you’ve an economy that’s growing very strongly,” said Joe Tynan, head of tax at PwC. “The indication is that if we have money we’ll spend it in the country rather than reduce tax receipts,” he added.

Mr Tynan noted that while the short-term prospects for the Irish economy were strong across most indicators, “clouds appear” in the medium term. “Three to four years out you’ve got Brexit, you’ve got trade . . . For such an open economy that’s a big impact.”

Expectation management

EY chief economist Neil Gibson echoed Mr Tynan’s view, noting the statement was a “well-crafted exercise in expectation management”.

“There is clear logic in spending less when the economy is strong, but as Ireland was not able to make large investments during the lean years, there is a rather long to-do list. This may necessitate a little more pro-cyclical spending than the Government – or economists – would like,” he said.

Annette Hughes, the director of EY-DKM Economic Advisory Services, suggested medium-term planning should include progress on the housing supply challenge. “Given the expansion plans of a number of high-profile companies, a failure to address this critical issue will jeopardise the very positive labour market developments which are expected to continue to be a driving force of our sustainable economic growth in the medium term,” she said.

Retail Excellence deputy chief executive Lorraine Higgins noted that for retailers, although sales trends are on a marginal upward trajectory, “the long-held assertion at budget time that improving consumer spend through increases in social welfare payments and tax bands is enough to take care of retail is no longer satisfactory given the unique challenges the industry faces”.

“Irish retailers are facing external challenges which demand unique solutions such as Brexit, sterling devaluation and the onslaught of cheap non-EU imports,” Ms Higgins said.