The decision by the Minister for Public Expenditure, Jack Chambers, to warn his Cabinet colleagues that spending overruns must be avoided this year is notable. It remains to be seen, however, whether the spending Ministers will take it seriously. Last year the tacit understanding was there could be no spending clampdown ahead of the general election. It remains to be seen if the issue is taken more seriously this year.
We must presume that Chambers will have the support of Minister for Finance, Paschal Donohoe. But the key issue will be the attitude of Taoiseach Micheál Martin and Tánaiste Simon Harris. If they are not signed up to tighter spending control, then it simply will not happen.
Spending is again running well ahead of schedule this year and the Irish Fiscal Advisory Council (Ifac) cautions that a €2 billion overrun could be in prospect. Nor is this new. The Central Bank calculates that spending – excluding once-offs – has grown by 37 per cent since the end of 2021, more than twice what would have occurred had the rule to keep annual spending growth to 5 per cent been adhered to.
This rule, introduced in 2021 , has been more honoured in the breach. True, there have been exceptional circumstances and some tax revenues has been put aside into two funds for the future. While this is welcome, the latest Ifac assessment points out that predictable overruns last year were not included in this year’s spending calculations, meaning that they never looked realistic from day one. This is a poor basis for budgeting.
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Ireland needs to avoid doubling down on its bets on corporate tax, particularly given the current uncertainties. It is vital , if tax revenues slow, to avoid having to make emergency spending cuts, particularly on key infrastructure spending. The additional State cash is also being injected into an economy already at full capacity.
Better control is needed - and a convincing budget framework replacing the 5 per cent rule. A new medium term budget plan is due – the question is whether anyone takes it seriously.
