As the general election approaches, the Government is planning to spend an additional €8.3 billion on budget day in permanent tax and spending changes, as outlined in the Summer Economic Statement.. A 6.9 per cent rise in spending again breaks through the 5 per cent limit under the fiscal rules. And this is after an additional €1.5 billion is allocated to health spending this year.
Ironically, despite all the extra cash, the room for traditional budget day spending and tax measures benefiting people’s pockets will be limited enough. This is because much of the additional cash is going to fund higher health spending and more State investment.
A further test for the Coalition lies ahead on budget day. Last year an additional sum in excess of €2.5 billion was added in a range of cost-of-living measures – if this happens again, and we get a €10 billion plus budget, then the Coalition will rightly stand accused of trying to buy the general election.
There are some good reasons why spending pressures have emerged. One is the urgent need to increase State investment in housing, water, energy and social infrastructure such as schools and hospitals. Another is the rising population. But there are problems, too. In particular, spending on health is crashing through its allocations year after year, presenting a significant fiscal risk and cutting room for manoeuvre in other areas.
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The health service is now to receive very significant additional cash in both 2024 and 2025, in addition to the substantial rises of recent years. It is essential that commitments made as part of this on keeping to budget and achieving value for money are delivered. Past performance here, however, does not inspire confidence.
The issue of getting a return on money spent also applies more widely across the public service and for State investment projects. In areas like housing, for example, the Department of Finance has already raised concerns about the extent of expertise available to the State in managing the massive amounts being spent. And big overruns on major projects create wider concerns.
The exchequer finances are vulnerable to any sharp fall in corporate taxation, or to the wider impact of a downturn or a change in investment trends in the multinational sector.
The establishment of two new funds to save cash for the future reduces this level of risk and is welcome. Without this another €6 billion would have been available for the budget and much of it might well have been spent . The decision to keep the finances in surplus is also the correct one.
But what has already been outlined goes far enough. There is no case to add to what has just been announced with more universal cash payouts on budget day, such as further rounds of energy credits. As well as being wasteful this would risk fuelling inflation,