Health spending overruns must be reined in, warns Government

It is "critical" that the Department of Health controls spending overruns this year, the Government has said, adding that new control measures had led to an "encouraging" picture halfway through the year.

Publishing its mid-year expenditure report, the Department of Finance said that a repeat of last year – when the health service overspent its budget by more than €600 million – would "severely impact on the scope for Budget 2020".

The report suggests that while the Government has said it is preparing for two scenarios – a no-deal Brexit or an orderly British exit which includes a transition period – in the weeks after the budget, the actual content of the budget itself will not differ.

It will be a package of €2.8 billion in tax and spending measures, with any further spending commitments paid for by new tax increases.

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If there is a no-deal Brexit, additional costs – such as social welfare increases as unemployment rises and supports to farmers and businesses affected – will be paid for by extra borrowing.

The review of the expenditure trends in Government departments halfway through the year underlines the centrality of the health budget to concerns about the public finances.

Day-to-day spending in health is running €519 million or 6.8 per cent higher than in the same period in 2018 – out of an additional €902 million or 5.8 per cent budgeted for the full year.

Allocation

The report points out that this means the Department of Health has spent 58 per cent of the additional year-on-year allocation provided this year.

“This compares favourably to the same point in 2018, where 123 per cent of the additional year-on-year provision for day-to-day expenditure had been accounted for, with a supplementary estimate of over €600 million required last year,” it says.

However, finance officials say they remained concerned because health spending tends to accelerate in the second half of the year. Some of the spending projections supplied by the Department of Health, they say, are “optimistic”.

Current expenditure will continue to grow from about €67 billion this year to about €80 billion by 2024

The Department of Public Expenditure analysis cites demographics, numbers employed in the health service and the cost of pharmaceuticals as the key drivers of health expenditure.

In general, the report predicts increasing expenditure in the coming years in the health, education and social protection areas, as demographic pressures lead to the demand for increased resources.

Capital investment

Current expenditure will continue to grow from about €67 billion this year to about €80 billion by 2024. However, the Government has also embarked on a large capital investment programme.

While expenditure growth has been sustained by a strongly growing economy, officials also warn about the dangers of continuing to increase expenditure at the current rate.

“Given the likely current cyclical position of the Irish economy against the backdrop of sustained high growth and with the labour market at full employment,” the report says, “overheating risks could be exacerbated if expenditure growth was allowed to continue to grow in line with the expenditure benchmark rule.”

It may be “prudent to adopt a more neutral medium-term expenditure stance”, it says.