There is some good news for the Government in the latest report from the Irish Fiscal Advisory Council (IFAC). But not a lot.
The council says the plans to include tax and spending measures of about €900 million in next October’s budget look reasonable – and that there should be scope to do more in future years. However, it fills out its earlier warnings that the Government has not made allowances in future projections for the pressures of an ageing population and inflation. This could cut its room for manoeuvre by about one half in the next five years, the council warns, from €12 billion to €6 billion.
For good measure, it adds in the warning that the new Government has published no costings for many of the promises in its new programme for government. In short, the Government has not outlined how much its plans will cost – and how it will pay for them.
Underlying message
Put the two strands of the report together and the underlying message is that the Government may have some money to spend in the years ahead, but that the amount it has for new, discretionary measures may well be limited enough. Not that you would think that looking at the programme for government, of course. First, what does it say about the short term? The council does warn that unless Government revenue exceeds expectations in 2016, the fall in borrowing this year may not be enough to keep Ireland within the EU rules. Trends so far this year do suggest, however, that just such a revenue overshoot may, indeed, be expected. Unless the figures fall off later in the year, the Government may be okay.
For next year, the outlined budget plans in the published programme submitted to Brussels look broadly appropriate on current trends, the IFAC says, though it does warn that over the next few years the Government may need to alter its plans if there are signs of economic overheating.
These plans will be updated in a new economic statement being published by the Government in the weeks ahead – and it will be interesting to see how they deal with the IFAC criticisms. After that, however, the council issues some serious warnings, saying that the Government projections for 2017-2021 “do not provide an informative picture of the public finances after 2012”. The council restates that it does not believe that the Government has been realistic in planning for factors such as public pay increases, inflation or demographic pressures, largely from an ageing population. And it says there will be little cash left over to boost capital investment spending in any serious way.
Reasonable view
Members of this Government, and the previous one, have argued the council is not taking a reasonable view here. Minister for Finance
Michael Noonan
and others have said the Government has not yet committed to public pay increases after the current agreements run out, and that it is an annual decision how to adjust the tax system for inflation via raising credits and allowances, and where to spend extra cash. These are annual budget measures, they have argued, and should not all be counted as costs which will automatically accrue by the IFAC.
Ministers may have a technically arguable point here. But in terms of being seen to politically “deliver”, the problem for Ministers is that the council is probably right.
Little political credit is likely to be given for starting to restore public sector pay cuts made during the crisis, or nudges at the edge of the tax system. Instead, the public will judge the Government on the basis of the promises in the programme for government, whose costs are as yet unpublished – as is how the Government plans to pay for them.
