Tighter budgets and a squeeze on unplanned spending increases in the coming years are in prospect as the Government prepares to unveil its Medium Term Fiscal and Structural Plan later today.
The plan will promise to cut the growth in day-to-day spending of recent years, meaning tougher budgets in the years ahead, with a focus on delivering housing and infrastructure rather than continuing large increases in day-to-day spending.
It will pledge to keep the increase in current spending to an average of 6 per cent over the remaining term of the Government.
This would represent a significant reduction from the increases seen in recent years. Current spending – spending on day-to-day public services, public sector wages and social welfare – increased by an average of 8.5 per cent a year between 2019 and 2024, according to official figures.
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The plan to hold the growth in day-to-day spending to 6 per cent a year will require a considerable slowdown from the growth levels of recent years and a clampdown on “in-year” increases, where government departments overshoot their allocated budgets and are voted extra money at the end of the year.
The plan promises to set “credible” targets and to ensure that budget numbers are adhered to. Sources say this is the central challenge in meeting the targets in the plan.
Attempts by the previous government to hold spending growth to 5 per cent were abandoned, and much of the additional spending introduced during the Covid pandemic has been gradually built into the spending base. This has led to criticism from the Irish Fiscal Advisory Council (Ifac), the Government’s budgetary watchdog, and the Central Bank, which have said that the State remains far too reliant on potentially transient corporate tax receipts.
A key reason why current spending needs to be controlled more tightly is that the State plans to push up capital spending by around 17 per cent a year as part of its plan to boost housing and infrastructure provision. This means reducing the growth of current spending is essential to leave enough money in the State coffers.
As well as controlling overspending during the year, the new target is likely to lead to tougher budget decisions in areas like health, social welfare and education, where day-to-day spending will have to be tightly controlled. Ifac has repeatedly called for the State to set a new “anchor”, or limit, on spending growth to limit risks to the public finances.
Meanwhile, efforts to eliminate roadblocks to vital infrastructure are stepping up. A new “clearing house” group of utility companies and government agencies, designed to overcome disputes and accelerate the delivery of projects, met for the first time yesterday.
Minister for Public Expenditure Jack Chambers told the agencies that they had to work together to endure disputes that were blocking large projects.
“The culture of passivity, drift, grudging acceptance and slow delivery needs to end,” Mr Chambers told the group, according to officials present.
