Opinion Fiscal Advisory Council : "A Budget that leaves Ireland unnecessarily vulnerable"

Discussion in 'Budget 2019' started by Brendan Burgess, Oct 11, 2018 at 9:47 AM.

  1. Brendan Burgess

    Brendan Burgess Founder

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    35,783
    Séamus Coffey the Chairman of the Government's fiscal watchdog was on Morning Ireland today:

    https://www.rte.ie/radio1/morning-ireland/podcasts/ headed "Budget 2019 Fiscal Advisory Council

    Not sure how to link directly to it

    Intro:
    A Budget that leaves Ireland unnecessarily vulnerable. That is the view of the Irish Fiscal Advisory Council set up during the bailout to advise Government so that we don't make the same mistakes which led to the last crash.

    The Council says that the Budget is right at the limit of what is prudent with little scope for error:

    "unnecessarily vulnerable" why?"

    Seamus Coffey
    If you look at the overall impact of recent government decisions, and not just what happened on Budget Day..

    we see that government spending will rise by €4.2 billion to hit just over €85 billion for 2019 - that is an increase of almost 6%.

    While some of that is coming from tax increases, in the main it's coming from the government account itself.

    A 6% growth rate is high in relation to the expected growth rate of the Irish economy.

    And the Budget documents show some breaches of the expenditure rules built into our fiscal framework.

    We are seeing government spending rising quite rapidly in an economy which itself is growing very strongly and one that faces risks on the horizon so it is not leaving us in a sufficiently strong position to deal with the inevitable down turn when it happens.

    There is no savings going into the rainy day fund. If you look at the government accounts for 2019, they are close to balance. The difference between revenue and spending is a projected deficit of €75m - so spending a tiny bit more than revenue.

    There is no surplus to go into the rainy day fund.

    If you look at the source of some of the revenues which are funding these spending increases, some is coming from growth, some is coming from corporation tax. But we also have additional interest savings as interest rates are very low

    And both the additional corporation tax and low interest rates arise, in the main, from outside our economy and spending that money gives a fiscal boost or a stimulus to our economy as the Corporation Tax in the main comes from multi-nationals and most Irish government debt is held by bondholders outside Ireland

    The increases in Health, Justice and Education should come from a domestic, sustainable revenue sources not the volatility of Corporation Tax and interest rates which means that cutbacks may be made in the future when we don't need to do them.

    Health spending

    We would hope that the cycle of supplementary estimates in health has come to an end.
    The extra allocation is €1bn to €17 bn. But we added an extra €700m last Friday for 2018.

    That will be repeated in 2019. So overall spending in 2019 will be €1.7 billion higher than it would have been previously

    Interviewer: If we took out that €1.7 billion would the budget be on course?

    Coffey: (I found this bit hard to follow)
    Because of the extra €1 billion, there should be no need for a supplementary estimate in 2019.

    Interviewer: Is this Budget Brexit proof?

    Coffey: From an overall macro point of view, there is little indication that the Budget is Brexit proof because as money is coming in, it's being spent as quickly. It's not quite back to the days of "I have it, I will spend it" but spending growth at 6% when receipts are not generated from the domestic economy, does leave us overly vulnerable.

    If there is a downturn, that is when we want to increase government spending. Not now when the economy is growing quite rapidly.

    Health employment has increased from 100,000 in 2014 to 120,000 in 2019 . That is at a time when the private sector is creating employment and there is demand for labour .

    While we are not saying that there should not be that increase in employment, there are no offsetting measures elsewhere to create space in the economy and buffers to deal with something like Brexit which is why this Budget leaves us vulnerable to that inevitable downturn.
     
  2. iTechy

    iTechy New Member

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    6
    So silly running budget deficits the last few years, whats gonna happen in the next downturn which may not be far off. Commentators speculating the US will enter recession in 2019-2020 which will have a knock on effect to Ireland and also we have the looming brexit situation.
     
  3. gnf_ireland

    gnf_ireland Frequent Poster

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    1,230
    If you look at the international markets over the last 24 hours, volatility is definitely on the horizon. We should be planning based on prudent measures and if we have a windfall, use the money accordingly (i.e. pay down debt)
     
  4. iTechy

    iTechy New Member

    Posts:
    6
    Exactly, my thinking would be to pay down debt also or we may have a serious noose around our neck going forward....