Fiscal council criticises extra budget spending

€1.5bn in supplementary spending marks ‘deviation from prudent policy’

Fiscal council criticises extra budget spending

€1.5bn in supplementary spending marks ‘deviation from prudent policy’

Prof John McHale, the NUI Galway economist who chairs the fiscal council, said the spending increase this year was funded by an unexpected surge in corporation tax. Photograph; Dara Mac Dónaill/The Irish TimesProf John McHale, the NUI Galway economist who chairs the fiscal council, said the spending increase this year was funded by an unexpected surge in corporation tax.

The State’s fiscal watchdog has criticised the Government for increasing spending this year in the days before Budget 2016.

The Irish Fiscal Advisory Council said in its formal assessment of the budget that the adoption of €1.5 billion in supplementary spending for 2015 marked a “deviation from prudent policy” which should not be repeated.

The council is an independent statutory body set up in the wake of the crash to monitor economic policy.

“Using unexpected incoming revenues to fund permanent increases in expenditure at a time of strong economic growth has worrying echoes of past fiscal policy errors and goes against the spirit of the new budgetary framework,” it said.

Framework

The council has found that the budget complied with the letter of domestic and European fiscal rules, but it said there was no room for any spending overruns next year. “The sustained pattern of overruns in health spending and the weaknesses of the domestic expenditure ceilings heighten the risk of non-compliance.”

The €1.5 billion in additional spending for the final weeks of 2015 was rolled into the starting allocation for 2016 before the budget added a further €750 million to expenditure and cut tax by €750 million.

Prof John McHale, the NUI Galway economist who chairs the council, said the spending increase this year was funded by an unexpected surge in corporation tax and added that there was uncertainty about the source of this overperformance.

Right balance

Prof McHale has stated that the advance in spending recalled the use of property-related revenues in the last boom to fund large spending increases.

“Spending this year will be 4 per cent higher than planned a year ago, a larger upward adjustment to plans than occurred in any year during the boom,” he said.

The Government defended the budget. “We have struck the right balance between reducing the deficit, reducing debt and investing in public services, infrastructure and targeted, work-friendly tax reduction while complying with the fiscal rules,” said Minister for Finance Michael Noonan.

 

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