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The budget watchdog, the Tax Advisory Council of Ireland, has said that the Government’s commitment to the Budget to support revenue and the economy is “appropriate”.
However, he was critical of billions in non-Covid spending commitments for which he said there were no long-term funding plans.
The government is expected to borrow more than € 20 billion this year and around the same amount next year to support the economy and revenue through Covid-19 and the possibility of a no-deal Brexit.
While saying that the huge amount of public funds is correct, the budget regulator criticizes between 5.5 billion and 8.4 billion euros that it estimates will be spent next year on expenses not related to Covid.
The hiring of more than 17,000 additional employees for the public service in general stands out.
He cautioned that these spending commitments are “surprisingly large” and likely permanent.
The council criticizes the lack of a long-term financing strategy, saying that the commitments in the program for the government leave few options for raising additional revenue.
IFAC warns that the economic impact of Covid-19 will be felt for a long time and does not expect the economy to return to pre-Covid levels until 2022.
It describes as “appropriate” the level of indebtedness made to fund schemes such as the PUP, the billions set aside for Covid-19 healthcare spending, and a variety of business grant and loan schemes.
But it has identified 5.4 billion euros of public spending in areas unrelated to Covid, which it believes could end up as permanent commitments.
He also said that there was very little information or transparency about an additional 2.9 billion euros distributed between local authorities and the semi-state sector.
His report said that such “substantial” increases in public spending without “a sustainable plan to finance them” “do not lead to prudent economic and budgetary management.”
He said the government program agreed between the coalition partners leaves little room to raise additional revenue.
The council warned that rising Irish debt levels, even with the help of historically low interest rates, leaves the country vulnerable to shocks in the future.
He urged the government to establish credible plans on how to pay for higher levels of public spending in its Stability Program Update next April.
IFAC said that Ireland already had a relatively high level of debt before the arrival of Covid-19, and challenges such as Brexit, changes to the international corporate tax regime, an aging population and an updated assessment of the Sláintecare cost.
He welcomed the establishment of a Pension Commission, but noted that the decision to postpone raising the qualifying age for the state pension to 67 will cost 575 million euros next year.
He predicts that under current policies, by 2050, half of Ireland’s debt burden “would reflect unfunded aging costs.”
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Council Acting Chairman Sebastian Barnes told Morning Ireland that the Government included a series of temporary measures in the Budget to support the economy during the Covid-19 crisis, but also included a large package of permanent increases in spending. .
This includes increases in spending on education, public health, gardai, and public service appointments.
Barnes said that “the concern is that the government has not identified how to finance that additional spending in a sustainable way.”
He said the government was prudent in assuming a hard Brexit would occur, but said that in the longer term it will be necessary to focus on reducing the national debt.
According to Barnes, the debt of the country that entered the crisis was approximately 95% of the national income. It is expected to increase to 115%.
He said the Council is comfortable with the loans to date, but the debt needs to be reduced.
Barnes said there is good news about a Covid-19 vaccine, but clearly “it will take a long time for the economy to recover along with the additional challenge of Brexit.”
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