The budgetary watchdog, the Irish Fiscal Advisory Council (IFAC), says the Government’s commitment in the Budget to support incomes and the economy is ‘appropriate.’ But it is critical of billions in non-Covid expenditure commitments for which it says there are no long term funding plans in place.
The government is expected to borrow over €20 billion this year and around the same amount again next year to support the economy and incomes through Covid-19 and the possibility of a no-trade deal Brexit.
This huge amount of public funding is ‘appropriate’ according to the Irish Fiscal Advisory Council.
But the budgetary watchdog is critical of between €5.5 and €8.4 billion it estimates will be spent next year on non-Covid related expenditure.
It highlights the hiring of over 17,000 additional recruits to the wider public service and warns these spending commitments are ‘surprisingly large’ and likely to be permanent.
The Council is critical of a lack of a long term funding strategy and says commitments in the Programme for Government leave few options to raise additional revenue.
IFAC warns the economic impact of Covid-19 will be felt for a long time. It doesn’t expect the economy to get back to pre-Covid levels until 2022.
It describes as ‘appropriate’ the level of borrowing undertaken to fund schemes like the PUP and the billions set aside for Covid-19 health expenditure and a range of grant and loan schemes for businesses.
But it has identified €5.4 billion of government expenditure in non-Covid related areas which it believes could end up being permanent commitments.
It also says there is very little information or transparency on an additional €2.9 billion spread across local authorities and the semi-state sector.
Its report says such ‘substantial’ increases in public expenditure without ‘a sustainable plan to finance them’ are ‘not conducive to prudent economic and budgetary management.’
It says the Programme for Government agreed between the coalition partners leaves little room to raise additional revenue. It warns that Ireland’s rising debt levels, even with the help of historically low borrowing rates, leave the country vulnerable to shocks in the future.
It urges the government to set out credible plans on how to pay for increased levels of public expenditure in its Stability Programme Update next April.
It says Ireland already had a relatively high level of debt before Covid-19 hit, and that challenges including Brexit, changes to the international corporate tax regime, an ageing population and an updated assessment of the cost of Sláintecare remain.
It welcomes the establishment of a Pensions Commission but points out that the decision to defer increasing the qualifying age for the state pension to 67 will cost €575 million next year.
It forecasts that under current policies, by 2050, half of Ireland’s debt burden ‘would reflect unfunded ageing costs.’