Ministers seeking extra money in the budget for spending programmes must find the cash themselves within their existing allocations, they have been told.
Minister for Finance and Public Expenditure Paschal Donohoe on Thursday launched his department's mid-year expenditure report which acknowledged emerging spending pressures in the light of tight fiscal constraints facing the Government for next year.
Although the economy continues to grow strongly this year, a combination of already committed spending – such as responding to demographic pressures – and the EU fiscal rules means there is little room for new spending by Ministers next year.
“In the absence of revenue-raising measures, provision for further new expenditure measures in 2018 would require that departments identify funding for such measures by reprioritisation within the overall current expenditure ceiling,” the report states.
This means that Ministers will have to propose making cuts to some areas of their budgets to expand others, something likely to be strongly resisted in the autumn when budget discussions begin in earnest.
Spending review
Mr Donohoe stressed the Government needed to examine all of its spending, not just the relatively small changes that will be announced on budget day. He said the Government would continue a rolling spending review of all expenditure.
The expenditure report shows that most of the increase in capital expenditure so far this year has been in housing, which has spent more than a quarter of a billion euro more in 2017 than in the equivalent period last year.
Overall, the report identifies that, so far, Government departments have spent €300 million less than was budgeted for at the beginning of the year.
However, pressures such as the decision to refund water charges and public sector pay increases will erode these savings by the end of the year.
Mr Donohoe said he expected the end-of-year position to be broadly as predicted.
However, with the future costs of the new public-sector pay agreement, if approved by the unions, and carry-over costs of last year’s budget decisions, the scope for new spending programmes and tax cuts in the budget remains extremely limited.
Fiscal space
And while Ministers and officials expect the scope for new spending and tax cuts – the fiscal space – to expand by the time of the budget, few expect it to expand beyond a few hundred million euro, senior sources say.
As expectations inflate due to the growing economy, that will make the forthcoming budget round politically difficult.
The Labour Party immediately disputed Mr Donohoe's figures. Party leader Brendan Howlin, Mr Donohoe's predecessor as minister for public expenditure, said that when the cost of the Christmas bonus was added to the cost of public-sector pay increases and the water charge refunds, the cost to the Government exceeded €400 million.
"To stand still, the Government needs to find €426 million in savings this year, assuming that absolutely no Government department exceeds their budget in any way this year. So far, they have only found €265 million in current spending. And we have yet to hear any asks from the Department of Health, " he said.
