The extent to which the Government’s budget strategy is based on a continuation of economic growth is made crystal clear by the latest quarterly report from the Irish Fiscal Advisory Council (IFAC). The Government has largely ignored the advice of the council, which has been that the Government should reduce the budget deficit more rapidly. Feeling the pressure of public opinion, the recent budget actually added to the deficit for 2015. This, the council states, was a “missed opportunity” to move the whole budgetary arithmetic into safer waters.
Given the huge public outcry over the water charges, the Government no doubt feels that following the council’s advice would only have made its political situation worse. Had it gone ahead and taken another €2 billion out of the budget – as opposed to adding €1 billion to borrowing – there would no doubt have been an even bigger outcry. If growth continues at the forecast rate or better, then it may not matter too much. The Government has consistently beaten its deficit forecasts and looks on target to do so again this year. This could take some of the pressure off the sums for 2015. However, a sharp slowdown could yet cause problems and would certainly dramatically reduce the room for any further giveaways in next year’s budget.
Both Government and Opposition are now being drawn into promising voters that they have plans to deliver less tax or more spending – or both. Ministers made a serious mistake over the summer in talking up the amount of leeway available in the budget. The risk now is that, battered by the water protests, this trend will continue. Already, there is a build up of expectations for more tax reductions, more spending on government services and increases in public sector pay. Yet, we are still three years away from eliminating the need to borrow money to run the State and repay our debts. Politicians on all sides should read it and accept the key message that there is still work to be done to restore order to the public finances, even if there is scope for argument about the best way to do it.