What is this Summer Statement from the Government all about?
It is one of the key steps toward the budget for next year that Minister for Finance, Paschal Donohoe will present on October 8th. It is the first time the Government formally outlines what it envisages the overall shape of the budget will be and what its priorities are. The Department of Finance already published its outline forecasts for 2020 in April and submitted them to the European Commission. These will be updated today and accompanied by some commentary on the prospects for the budget.
Why bother with this?
Up to 2008, the budget was presented each year in December, and the government of the day told us all as little as possible in advance. After the crisis hit, however, new procedures were put in place. Amid increased oversight from Brussels, there is the obligation to submit details of plans for the year ahead to the European Commission in the autumn, and now our budget timetable is aligned with that of most other EU states.
And at home?
At home the budget is now subject to lengthy discussions politically – and more widely. A whole range of players is now involved. So today’s Summer Statement will be followed later this week by what is called the National Economic Dialogue, where unions, employers, lobby groups, NGOs and so on will present and discuss views on what the budget should contain. It is then discussed by the Dáil committee on budgetary oversight, which now has its own parliamentary budget office to do research.
Plans are finalised, following discussions between Fine Gael, Fianna Fáil and the independents who support the Government and presented in early October. And then there is the Fiscal Advisory Council, which gives an independent view on the budget estimates.
So from having a closed and secret process in the past, we now have a whole host of people pouring over the options. Despite the hours of talking and analysis, however, much of the contents of the budget still come down to political haggling.
What should we look out for?
Mr Donohoe will give some indication of the overall budget number. The budget package, as things stand, is expected to involve additional resources – higher spending or lower taxation – of around €2.8 billion. He will indicate, however, that most of this – probably more than €2 billion – is already accounted for by existing commitments to spend more on investment, public pay and so on.
So the money available for new measures on budget day will be limited. Any overspending this year, particularly by the Department of Health, could reduce the 2020 room for manoeuvre even more – though strong tax revenues could offset this. The overall message will be the Government wants to keep things tight, particularly as the economy is already growing strongly.
And what about Brexit?
This is the real problem for Budget 2020. As things stand, the budget will be presented before the UK leaves – the current exit date is October 31st – and quite possibly without knowing whether a no-deal Brexit is about to happen. The EU budget timetable and the uncertainty about when Brexit might be decided means delaying the budget is not really an option.
The Government will say that if there is a no-deal Brexit, the budget will be allowed to swing into deficit next year – otherwise a surplus is expected. Get ready to hear some new jargon – there will be a lot said about the “ automatic stabilisers”, which is the normal fall-off in tax revenue and increase in spending when an economic shock hits.
The real difficulty for the Government, however, is estimating how severe the unprecedented shock of a no-deal might be.
