Donohoe rejects Ifac criticism of spending plans

Minister for Finance Paschal Donohoe has rejected claims that his spending forecasts "lack credibility" and that he is using unsustainable corporation tax receipts to plug holes in the health budget.

In a written reply to the Irish Fiscal Advisory Council (Ifac), whose latest assessment report accuses the Government of mismanaging the public finances and failing to keep spending in check, Mr Donohoe insisted his spending plans were sustainable and prudent.

He said, in setting out its budgetary priorities for 2017, 2018 and 2019, the Government made a decision to allocate further funding towards current expenditure beyond what had previously been outlined.

This was facilitated by the budgetary policy choice not to avail of the full fiscal space available for tax measures in the last two years, and the introduction of revenue raising measures, he said.

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Mr Donohoe also noted his approach in relation to “departmental expenditure ceilings” was sensible and informed by the experience of the crash.

Large and ultimately unsustainable increases in expenditure were implemented in the lead-up to the 2008 crash under the guise of inflationary increases, he said.

“This demonstrated the real risks inherent in setting as a new baseline (ie floor) for any new increased expenditure by restating expenditure amounts (‘ceilings’) and applying inflationary increases,” Mr Donohoe said.

Demographics

Ifac has repeatedly claimed the Government is imposing tough expenditure ceilings on various departments, most notably health, ones that do not take into account natural demographic and pricing pressures, only to burst through them each year.

In his letter, Mr Donohoe acknowledged the council’s concern in relation to health spending, conceding that an in-year slippage in 2018 resulted in a supplementary estimate of €645 million for the health department.

As a result, Mr Donohoe said a Health Budget Oversight Group, comprising officials from the Department of Public Expenditure, the Department of Health and the Health Service Executive, had been set up.

“The group is tasked with monitoring monthly expenditure against service line profiles, and to highlight deviations at an early stage and ensure remedial action is taken to ensure expenditure returns to profile,” he said.

Last year the business tax generated a record €10.4 billion, more than double the 2015 figure

Mr Donohoe also noted the council’s concern about the Government’s use of corporation tax receipts to cover increases in current expenditure.

“I have stated on many occasions that I am not complacent to the risk to the public finances from this revenue stream,” he said, noting a modest decline in receipts is included in the Department of Finance’s projection for this year.

More than double

Last year the business tax generated a record €10.4 billion, more than double the 2015 figure, and it is on course to at least match that this year.

Ifac claimed the Government’s large corporate tax buffer was providing a convenient smokescreen for out-of-control Government spending, particularly in health.

Mr Donohoe said, however, he had requested an internal departmental review “to assess the sustainability of corporation tax receipts, particularly in light of multilateral changes that are likely on foot of the OECD’s work in this area”. He said the review would be published by March next year.