The Government is failing to adequately budget for climate change and healthcare reform while continuing to rely too heavily on corporation tax receipts, the Irish Fiscal Advisory Council (Ifac) has warned.
In its latest assessment of the public finances, the council praised the Government’s recent budget, noting it struck “an appropriate balance” between supporting the economy and keeping the public finances on a sustainable path.
However, it said it was unclear how the State’s commitments on health and climate change fit into the Government’s medium-term strategy “and whether sufficient resources have been allocated”.
It said the cost of halving Ireland’s greenhouse emissions by 2030 – laid out in the Government’s climate action plan – had not been factored into the current budgetary arithmetic.
“While a substantial part of the national development plan’s capital spending could contribute to these objectives, there may be significant additional costs to the State, particularly in encouraging the switch to electric vehicles and improving home energy efficiency,” it said.
Sláintecare reforms
Similarly on health, the budget watchdog said there was currently no clearly identified budget to continue implementing Sláintecare reforms beyond next year “and there are no up-to-date estimates of the costs of implementing remaining reforms”.
“It is possible that budgeted amounts will fall short of what is required, particularly for current spending needs,” it warned.
The Government’s budgetary forecasts out to 2025 suggest it will have approximately €1.6 billion per year for additional spending measures over and above already-committed increases in it current and capital budgets.
The council estimates that about €1.1 billion of this will be needed just to maintain the existing level of services and benefits, what it calls the “stand-still costs”. That leaves just €500 million for climate change and healthcare reform.
“The space available for funding new current spending initiatives on a sustainable basis each year without raising taxes or scaling back other spending is very limited,” it said.
Council chairman Sebastian Barnes said the Government now needs to clarify how the costs of Sláintecare and the new climate action plan will be funded sustainably.
Corporation tax
In its report, the budgetary watchdog also highlighted the Government’s ongoing reliance on corporation tax receipts, noting receipts have become more concentrated with just 10 large firms accounting for 56 per cent of all corporation tax receipts last year.
“The concentration of corporation tax receipts, coupled with their ongoing volatility and vulnerability to international tax developments, is a source of serious concern,” it said.
The council recommended the Government allocate any further excess corporation tax receipts, including increases due to the rise in the minimum corporation tax rate to 15 per cent, to a new rainy day fund.
“The rainy day fund has been absent in recent budget publications but could play an important role in reducing the Government’s current over-reliance on corporation tax receipts,” it said. Previous plans for such a fund, first proposed in 2016, never got off the ground and were then abandoned with the onset of Covid-19.
On the economy, Ifac said “growth could be higher if scarring from the pandemic proves less severe than assumed, if wages grow faster or if an unwinding of savings boosts consumer spending more than assumed in 2022”.
However, it said the potential for virus mutations and further restrictions to manage the pandemic “ weigh on growth prospects”.
