Government set for conflict with FF over plan to cut budget spend

The Government is to pull back from spending all the money available to it in this year’s budget, in a move which will lead to conflict with Fianna Fáil.

The dispute could threaten the confidence-and-supply agreement that underpins the minority government.

The Irish Times understands senior figures in Government believe it would be “crazy” to spend all of the €3.2 billion – or higher – available to Minister for Finance Paschal Donohoe in the last budget of its deal with Fianna Fáil.

“You would be mad to spend it all,” said a senior Government source. “No economist in the world would.”

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It is understood the view that some of the money which would ordinarily be spent on tax cuts and spending increases should instead be held back has hardened in recent weeks. Sources said this opinion is particularly strongly held by Mr Donohoe and his officials in the Department of Finance.

However, Fianna Fáil figures warned that not spending money available would be a breach of the confidence-and-supply deal. This commits to the “introduction of budgets that will involve at least a 2:1 split between investment in public spending and tax reductions”.

Party sources also rejected claims that Fianna Fáil could be portrayed as reckless in advance of the election – and if the Government falls on the October budget – if they demand that all resources should be spent.

Hospital trolleys

One source noted that, for example, Minister for Health Simon Harris has promised to solve the issue of people waiting for beds on hospital trolleys. “How are they going to do that if there is money available but they won’t spend it?”

The amount of money available for new tax cuts and spending increases – the so-called “fiscal space” – is currently estimated to be €3.2 billion, although this is expected to rise before budget day in October.

Of that, about €800 million will be set aside for pre-existing budgetary commitments and a further €500 million will be set aside on deposit.

The remainder is available for entirely new spending, although sources said a portion would be kept back because of fears of overheating the economy. Money held back could be used to pay down debt, for capital expenditure, or kept on deposit.

The budgetary process will formally begin next month, with the submission of the stability programme update to the European Commission, followed by the summer economic statement before the Dáil rises for its annual summer break.

Senior Government figures are also keen to begin negotiating a successor to the confidence-and-supply deal before the October budget. Fianna Fáil leader Micheál Martin has consistently rejected this approach and said the deal would be reviewed after the budget.

It is seen as unlikely among senior figures in both parties that a successor deal will be agreed. An election between next autumn and spring is seen as probable.