The Irish Fiscal Advisory Council (IFAC) will know that the next budget presents a moment of danger for the public finances. Before a general election, the Government will want to be generous , in order to try to win votes. Already there are promises of higher spending and lower taxes and pressure within the Cabinet will only increase over the summer.
Against this backdrop, the IFAC – the budget watchdog – has issued some timely warnings in its latest assessment. It does not believe that the Government is being prudent with the public finances. And it warns that now is not the time for what it calls an “everything now approach of tax cuts, increases in current spending and ramping up capital spending all at once.
” This is likely to be precisely what the Government is planning, of course, though the council no doubt hopes that its intervention can lead to some moderation in what is announced. The council’s conclusions are based on familiar arguments. The economy is already at full capacity, it says, and further stimulus risks overheating.
Tax revenues – particularly for corporation tax but also income tax – remain vulnerable, given their narrow base. And due to what it dubs “fiscal gimmickry”, the council argues that the Government is already not accounting in a reasonable fashion for the bills that lie ahead. Part of this is because costs which are set to become permanent - such as those for housing refugees, or some of the cost of running the health service.
