In forceful terms, the Irish Fiscal Advisory Council has questioned key assumptions underpinning the economic plan set out in the Government’s spring statement and related documents.

At issue primarily are technical breaches of Europe’s budgetary guidelines in the measures proposed for 2016 – and glaring deficiencies in measures set out for a longer horizon. Although the council is keen to stress that the public finances are steadily improving as recovery broadens, its core argument is that the plan lacks credibility on basic points.

The council’s charges are varied. Having set out proposals to increase expenditure next year by between €600 million and €750 million, the Coalition now stands accused of going against the letter and spirit of the EU rules by relying on assumed tax buoyancy to fund such spending.

Budgetary projections

Moreover, the council makes the case that budgetary projections beyond 2016 do not present the full picture. Even though the Government has made explicit commitments to cut tax for years to come, the council says the spring plan does not properly account for the likely costs flowing from the ageing of the population and costs pressures in existing programmes.

“One thing we know is that mistakes have been made in good times. We have to remember that,” said Prof John McHale, the NUI Galway economist who chairs the council. “And that’s why a strong budgetary framework is so important, in that it stops you making those mistakes, it essentially short-circuits those mistakes.”

He went on to acknowledge the rules themselves were not perfect and were overly complex in their operation. “But it is a workable budgetary framework. So it’s of concern now that as we enter into these good times that the Government is setting out plans that do not fully comply with it.”

Of course differences between the council and Merrion Street are nothing new. Since its establishment by statute in 2011 to monitor economic policy, the council has nearly always urged the Government to go further, faster in the long campaign to repair the public finances. The Government is largely impervious to such entreaties, leading to claims that the credibility of the Council itself is in question.

Rhetorical

The council’s new Fiscal Assessment Report centres on the Government’s “stability programme update” (SPU) submission to Brussels, published in April alongside the spring statement. While the two embraced the same plan, the spring statement was more rhetorical in its conception and the SPU more technical.

Further observations arise. First,the spring statement was always seen as a manoeuvre by the Government – in anticipation of the looming election – to draw the Opposition into “realistic” debate on the fiscal space available in coming years. Although the basic message in the plan was to cast the Government as the voice of reason, the council now says a greater effort is required.

The final point to be made is the merits of the very rules cited by the council have been called into question by the IMF, which is seeking a far simpler framework. Although Prof McHale largely concurs with the IMF position, he says it is important nonetheless to apply the rules currently in force. As conditions improve in the real economy, he says failure to do so risks a repeat of past error.

“The fact that there is a question mark at this point whether there will be full compliance with the rules in 2016 certainly raises issues about whether prudent policy is being followed.”