The Summer Economic Statement is one of the key documents ahead of the October budget. It indicates the broad size of the package which the Government will negotiate and the intended breakdown between tax and spending measures. As such, it has a political as well as an economic importance.
The figures published yesterday indicate that the Government intends to stick to its new medium-term plan for the public finances agreed by the Cabinet earlier this year. Broadly, this aims to keep spending growth at 6 per cent per annum.
This would represent a welcome slowdown on recent years. But it will require a realistic approach to framing the 2027 budget and a determination to keep to the announced figures. In recent years, neither of these requirements has been met. A key problem has been that spending growth each year has come in well ahead of budgeted levels, ratcheting up the overall level of expenditure as one year’s excess feeds into the base for the following year.
This haphazard process is far from ideal in terms of delivering value for money. Minister for Public Expenditure Jack Chambers has pledged to get control on spending and improve value for money through reform. This is the correct approach, though previous ministers have said the same but struggled to deliver.
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Demands for the Government to spend more on budget day will be intense, particularly given cost-of-living pressures and strong tax revenues. In previous years, spending estimates on budget day were unrealistically low – leading to inevitable overruns and large spending rises – and targets were fudged through the use of ostensibly temporary measures.
This cannot continue to happen. If it does, Ireland’s reliance on potentially volatile corporate taxes will continue to rise. Unless real trouble hits, the budget must remain in surplus and cash must continue to be paid into the two funds for the future.
With the uncertainties over the corporate tax windfall and pressure due to come on budgets in the years ahead from an ageing population and the cost of climate change, the headline budget situation is nowhere near as favourable as it looks. But even allowing for this, the Government faces a public finance position which is unique in the EU in giving such significant room for new tax and spending measures. Its task is to identify its priorities for the budget, prepare the public finances for the years ahead and ensure better value for money in the funds it is spending.
Ministers Harris and Chambers yesterday said the right things. But the fear is that in the run up to the budget itself, prudence will again take second place. It is up to the Taoiseach and the two budget Ministers to ensure this does not happen. It is not going to be an easy task.
