I recall some years back being temporarily taken aback when I was introduced as a seasoned budget analyst on a radio programme. However, considering my first engagement with a budget package was in 1988 – albeit as a novice reporter contributing a handful of piecemeal reactions – the moniker was entirely justified. Having witnessed numerous budgetary proceedings, one might suggest I’ve gained a unique understanding, although puzzlement could equally be an outcome.
There is indeed a faint echo of Bill Murray’s eternal cycle in Groundhog Day in the annual budget routine, as the slightly varied iteration of events unfold. Cued up participants now comfortably step into their established roles, whose utterances should be taken with a grain of salt.
Currently, we tread the path of severe admonitions directed at officials, with the Central Bank of Ireland and, more recently, the Fiscal Advisory Council advocating for fiscal restraint. The issuers of these cautionary missives are blatantly aware of their potential disregard or, at best, their minimal influence on the final decision. As the words of Roy Keane resonate, they are merely fulfilling their duties.
Forebodings of an impending financial crisis, symbolised by the “wolf” and brought upon by a potential downfall in corporate tax receipts, have been present since around 2016. Meanwhile, revenue from these taxes has nearly quintupled. The only plausible deduction is Ireland’s vulnerability to multinational ebbs and flows on varied fronts – taxes, jobs, expenditure – and the futile endeavour to control these variables.
This week’s indication of another spike in corporate taxes will inevitably stimulate excitement amongst Cabinet members. This escalates the stakes for the forthcoming discussions on the summer economic statement, slated for next week, which will provide initial insights into the scope of the package and the planned long-term changes to expenditure and taxation, projecting to 2025.
Observing the actions of individuals as opposed to their words will be crucial as we enter this significant stage of strategic jostling and speculation. Budget Ministers Jack Chambers and Paschal Donohoe find themselves pulled in multiple directions. They must reassure the public that all is well, while warning their cabinet colleagues of potential threats and cautioning them against reckless behaviour. Yet, despite their public commitment to adhere to guidelines, it is clear that government expenditures for the upcoming year won’t be contained within the proposed 5% spending limit.
No possibilities exist for the expansion of spending in 2025 to remain under this 5% cap, and there’s a significant probability that noticeable overages will be revealed in the summer statement, possibly exceeding a 7% increase. Several key factors account for this. Significant increases in State investment spending are already expected, with €1.5 billion earmarked for upcoming projects. Also, health funding is exceeding its limit by an astonishing €1.1 billion. Donohoe is in negotiations with Health Minister Stephen Donnelly to ascertain how this will affect the remainder of the year, but the threat of healthcare costing over €2 billion more than planned, casting a shadow over the 2025 budget, is a very real possibility. An understanding in this regard will likely be reached before the summer statement. Though we may be advised that the matter has been resolved, similar assurances have been issued before.
To discern the facts beyond the clamour, consider that the budget remains in surplus, at over €8 billion as per current projections, and is expected to stay profitable. Furthermore, Donohoe and the outgoing Michael McGrath have established two funds to support future expenditure, into which €6 billion will be allocated next year. These steps draw resources away from the budget, mitigate the risk of a substantial windfall and reduce the possibility of another public finance surge and crash cycle.
In a given scenario, whether the annual spending increases by 6.5 per cent or 7.5 per cent may be of marginal difference. Nevertheless, it is crucial to note that it will contribute greatly to the colossal spending surge in recent times, leading to a significant cumulative rise. Spending has soared by one-third pre-pandemic, provoking genuine queries regarding the value Ireland is obtaining. Based on an official document released last week, Ireland’s health expenditure is alarmingly high by global standards, surpassing the average of the Organisation for Economic Co-operation and Development (OECD) by 28 per cent. However, does the service increase correspondingly?
Planning infrastructure, housing, school, and hospital investment is praiseworthy of the State, although questions regarding its proficiency linger. The design, choice, and effective execution of these agendas symbolise impending risks for the national economy and public money. The structure of the State’s finances does not effectively account for potential liabilities and such risks.
As the summer statement approaches, a crucial matter must also be considered. The overall budget equation is evidently a play in two acts. It highlights the intended amendments in permanent spending and tax measures, but does not shed light on the temporary payments towards households and businesses caused by the Covid situation, the influx of Ukrainian refugees and the cost-of-living crisis seen recently. These are usually decided upon the run-up to the budget day and, being labelled as ‘once-off,’ fail to feature in the summer statement.
Repetition of these measures lacks justification. Lower income households require constant support, not fleeting relief. Expenses linked with refugee housing are now ongoing rather than one-off instances. Most individuals are managing fine without surplus energy credits or additional child benefits.
Chambers has taken a positive stance regarding the revitalisation of conventional budgeting practices—a move to be rightly applauded. However, together with Donohoe, they will likely face internal cabinet pressure to curry favour with voters. If on the 1st of October further billions are squandered on such actions, it will justifiably be deemed a profligate and irresponsible budget.