Budget day has finally arrived, with the inevitable focus on who will get what from the tax and spending measures. The speech is also an important marker for Government policy, and this year will include plans to establish new funds for the future.
This kind of financial planning is important because while the current state of the public finances is strong, previous experience shows how quickly it can turn. And at the moment the reliance on the corporate tax payments of a few companies does create an exposure.
As well as this uncertainty about the future flow of revenue, Ireland also has a significant national debt. Servicing this, or raising any funds required to roll over maturing debt, are not currently a problem. And the State also has large cash resources, providing significant leeway.
However, the debt remains in the background standing at €225 billion at the end of last year and forecast to remain around that level this year. The debt burden – measuring its size against an adjusted measure of the Irish economy – has fallen significantly since the crisis days of a decade ago. But the nominal level of the national debt remains high, it continues to consume resources to service and so it needs to remain a central factor in the planning of the public finances.
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The establishment of new funds into which excess corporate tax receipts will be placed creates assets on the other side of the State balance sheet. The details of the rules surrounding these funds – some of which will be outlined today – are important. The dual goal is to protect investment in case tax resources become stretched and to create a longer-term fund, the interest from which will help pay some future State bills.
It would also be wise to plan to reduce the cash level of the debt itself, which can be achieved by paying off maturing debt rather than refinancing it. Safeguarding the national finances in so far as is possible may not win the Government any political popularity contests, but it is, nonetheless, vital. All too often in the past the boom to bust cycle has left Ireland exposed.
