Jim Power: Summer economic statement sows confusion
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Budget season is now in full swing following the publication of the summer economic statement (SES), and from now until October 1 we are guaranteed analysis paralysis.
Every year it is the same and I always contemplate the nonsense of having this annual event that at the end of the day will not have any significant influence on our daily lives but sends media commentators and the political classes into a frenzy.
The key message from the statement is that an overall package of €8.3bn which will comprise additional public spending of €6.9bn consistent with expenditure growth of 6.9%, and taxation measures amounting to €1.4bn.
Current expenditure will increase to €90.9bn while €14.5bn is being provided for capital expenditure, which is projected to grow by €1.4bn or 10.6% in 2025.
Of the increased spending of €6.9bn, €1.2bn is going to the Department of Health to cover the cost of additional levels of service; €1.3bn is for the cost of the public sector pay deal; €1.3bn will pay for measures announced last year, and €1.4bn will be used for additional capital spending.
This means that there will be €1.8bn left for new spending measures.
The €1.4bn tax package will be used to adjust tax credits and bands to ensure that workers will not find themselves paying a higher rate of tax due to higher wages.
In the SES of 2021, the Government set out a medium-term budgetary framework which anchored public expenditure growth at 5% per annum.
For Budget 2025, the Government argues that it is adjusting the strategy (aka, ignoring the rules) to accommodate higher capital spending and to provide additional public services against the backdrop of a larger population and higher price levels.
There are no major surprises in the statement, but it does give rise to considerable confusion, at least in my simple mind.
In the SES of 2022, the Department of Finance announced a package of €6.7bn, but on budget day, the minister stated that the budget contained an €11bn budget package.
In the SES 2023, the Department of Finance announced a package of €6.4bn, but on budget day the minister stated that the budget contained a €14bn budget package.
Something similar is likely this year. Confusion is sown by issues concerning ‘core’ and ‘non-core’ spending, not to mention once off measures.
The process seems to be designed to confuse, and it certainly delivers in that regard. No wonder the Irish Fiscal Advisory Council (Ifac) is deeply sceptical.
One way or another Budget 2025 will represent another generous fiscal package and as usual will ignore prudent warnings from bodies such as Ifac, the ESRI, and the Central Bank.
Despite suggestions to the contrary it will be an election budget.
Some of the concerns expressed by bodies such as Ifac is that it risks adding too much heat to an already expanding economy.
I would not share that concern, because I think the Irish economy is not displaying too many signs of overheating.
The real issue for me is that the current spending base continues to expand rapidly, without any real concern for the quality of the expenditure.
A long-term strategic approach to spending is essential, but we are not likely to see any such strategic focus on October 1, nor indeed have we for many years.
I don’t blame the government as there is a necessity to do whatever is necessary to get re-elected.
Such is the reality of political pragmatism. Meanwhile just sit back and enjoy — or endure — the budget circus.