The Irish Times view on the fiscal watchdog’s warning: An important, stinging critique

Government is at risk of repeating the past mistakes, thus leaving the State vulnerable

For a Government – and a Minister for Finance, Paschal Donohoe – who regularly play the prudence card, this criticism from the Fiscal Advisory Council will sting. Photograph:  Gareth Chaney/ Collins

For a Government – and a Minister for Finance, Paschal Donohoe – who regularly play the prudence card, this criticism from the Fiscal Advisory Council will sting. Photograph: Gareth Chaney/ Collins

 

The Irish Fiscal Advisory Council (IFAC) did not hold back in its criticism of the Government’s budgetary policy in its latest assessment, saying it is not consistent with prudent management and even carries “worrying echoes of mistakes made prior to the last crisis”. For a Government which regularly plays the prudence card, this criticism will sting.

Of concern is not only the criticism of the stance of policy, but also the council’s assessment that Government spending plans from 2020 to 2023 “lack credibility” and do not allow for normal pressures. In turn, this means that the plan to move the budget into consistent surplus could quickly be blown off course.

In recent years the dramatic improvement in the budget position since 2008 has stalled. Extra revenues from a growing economy and an unexpected – and possibly unsustainable – pick-up in corporation tax have all been put into increased spending. In doing this, the Government is at risk of repeating the mistakes of the past, spending all the cash that is available and thus leaving the State vulnerable when the next downturn happens. The analysis by the council shows just how easily this could happen and how quickly the debt burden could rise.

Taoiseach Leo Varadkar rejected the budget criticism, saying that the EU had judged the budget to be compliant with its rules and extra spending had gone on areas of need such as health and housing. However, this does not address the substantive point made by the council, which is that allowing spending to run ahead of the sustainable level of revenue growth is leaving the public finances vulnerable.

Nor does it address the repeated failure of the health service to stay anywhere close to budget, with the council’s analysis showing that a surge in recruitment towards the end of each year has contributed to massive overruns.

There can be no doubt that the manoeuvre before last October’s budget, when more than €1 billion in additional revenues from corporation tax were signalled and largely applied to cover an overrun in health spending , is central to the council’s assessment. This overspending for 2018 then fed through into spending plans for 2019. It means that the State may struggle to achieve the targeted budget surpluses in the years ahead, the council says, pointing out that even in the run up to the crisis the budget was in a surplus position.

The Government – and the political system – needs to heed this report. So do lobby groups and the public, who are used to expecting that spare cash is all spent on budget day. In particular, how can it be that long-term spending forecasts are not based on a firm foundation, as the council warns? And if this is the case, drawing up more realistic projections on which to base policy must be an urgent priority.

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