Watchdog concerned about Government’s ‘poor budgeting and fiscal gimmickry’
Expenditure Leinster House Unveil Last And Minister For Public At To Paschal Finance 2024 Budget In October Minister Mcgrath For Dublin Michael Donohoe
The country's fiscal watchdog has said that the "everything now" approach to October's budget risked Ireland repeating financial mistakes of the past.
The Irish Fiscal Advisory Council (IFAC) said in its assessment of the budget that "big challenges lie ahead" and that the Government needed to adhere to its own spending rules. The Government opted to go above the 5% increase in core spending in October's Budget, citing high inflation.
The report says that Ireland's economy in the run-up to the budget had been performing above capacity and that it was a time to "not add too much fuel to the fire".
However, the Government announced another substantial package of measures in Budget 2024, something the council said was untargeted and risked repeating the mistakes made at the end of the Celtic Tiger
"At about €12bn, this put it in line with other post-covid budgets and roughly three times larger than pre-covid packages. Cost-of-living supports included in the package were mostly untargeted. The “everything now” approach of tax cuts, a ramp-up in capital spending, and current spending increases (the chances of repeating) Ireland’s past mistakes. It entails using strong tax receipts in good times to expand the budget quickly at the risk of adding to price pressures, getting bad value for money, and potentially having to reverse measures in a downturn."
There was also evidence of poor budgeting on the spending side, the report said. It said that overruns in the health budget which were "obvious before Budget Day" were not catered for sufficiently.
"As a result, these overruns are now likely to entail higher-than-budgeted spending in 2023. As well as that, the health allocation for 2024 is barely enough to cover demographic and price pressures such that further overruns are highly likely.
"The substantial increases in spending alongside a package of tax cuts meant that the National Spending Rule was breached. The breach, taken in isolation, might not be considered massive at 5.8% in 2024 as compared to the rule’s 5% limit. The Government argued it was necessary to deal with high inflation. However, since the rule was introduced in 2021, the level of budgetary measures is cumulatively €6.6bn (7.5%) above what would be implied by a 5% path."
The council said that it was "worrying" that the Government had indicated it would breach the rule again and said that it had also employed "fiscal gimmickry to flatter its numbers".
"Several items in Budget 2024 were labelled as 'non-core' or temporary but look highly likely to persist beyond 2024. This includes covid spending in health, Ukrainian supports, and additional capital spending increases labelled as 'windfall'. This is deeply concerning. It undermines the National Spending Rule, which is now more important than ever."
Commenting on the report, Michael McMahon, acting chairperson of the Fiscal Council, said that the economy "remains in a position of strength and the public finances are on a good path" but said Budget 2024 was marked by "exceptionally bad budgeting".
"The rule needs to be adhered to if Ireland hopes to sustainably meet challenges of rising costs related to pensions, healthcare, and long-term care as well as its climate transition."