Ministers should be conscious that taxpayers‘ money is finite and “not a solution for every problem”, the Department of Finance has warned.
In briefing material for its Minister Simon Harris, published on Friday, the Department of Finance suggested that “excess” corporation tax receipts were masking what could be an underlying deficit of more than €13 billion in the public finance this year.
Officials maintained that public spending had increased by 75 per cent (about 40 per cent after adjustment for inflation) since before the pandemic.
They warned that “financing such an increase in spending on the basis of a narrow tax base is a serious fiscal vulnerability”.
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The briefing document drawn up for Mr Harris on his appointment in December show officials were concerned about a lack of budgetary discipline caused in part by Government spending increases during the course of the year.
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“On the surface, the public finances are in relatively good health – for next year, a modest exchequer deficit is in prospect, accompanied by a headline general Government surplus.”
Below the surface, however, “fundamental weaknesses persist”, officials warned.
“The Department estimates that ‘excess’ corporation tax receipts amount to around €18 billion – these are revenues that are not linked to the domestic economy and could prove transient. This implies an underlying deficit of over €13 billion next year.
“Part of the problem lies in the ‘in-year drift’ – multiple fiscal events over the course of the year. Another part of the problem is the ‘monetise every problem’ approach – rather than address the underlying structural problem, line Departments and Ministers need a renewed consciousness that taxpayer’s money is funding spending. It is a finite source and not a solution for every problem. ”
The Department of Finance also maintained that the “stock of [national] debt this year is projected at over €209 billion (62 per cent of GNI*)“.
It said on a per capita basis, “this is among the highest in the developed world”.
Officials also said that the cost of debt-service was set to rise in the years ahead.
“This is because rolling-over (refinancing) maturing debt (much of it issued at zero coupon during ‘quantitative easing’ and the pandemic) will be more costly in an environment of higher interest rates.”
Officials said that “value-for-money considerations must be reprioritised”.
“Public spending has increased from €67 billion from just before the pandemic to €118 billion for next year – a 75 per cent increase in just seven years. In-year spending drift has contributed to a lack of budgetary discipline.”
