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WITH THE DUST settling on the recent budget, it is a good time to take stock of Irish economic policy, current and future.
In June, the Department of Finance calculated the government had a ‘net fiscal
space’ of €1.4 billion to use – through either spending increases or tax reductions – in what was the upcoming budget.
The government could have run a deficit of 0.4% of GDP. However, the government is planning to run a budget balanced for 2019, but in reality could spend or use an extra €1.4 billion at least.
Because spending has increased some have labelled the budget expansionary.
The relevant metric is, of course, how much the government is spending as a proportion of national income, not the absolute spending increase.
This is especially the case with spending on government services, which tend to be labour intensive – being services they have less scope for efficiency savings than goods production, which can be automated.
As the economy expands and wages increase, we expect spending to increase at least as much so that its share of national income remains the same. On that measure, a balanced budget for 2019 is anything but expansionary, quite the opposite in fact.
Even if we use GNI*, which attempts to adjust for distortions to GDP caused by multinationals (though which is not used to calculate the fiscal space), the budget is still set to be balanced in 2019, and run surpluses thereafter.
As is apparent from the table below the Irish state is set to shrink, except for capital spending.
Regarding health, it’s difficult to see how the government can meet its stated aims given its commitment to shrinking spending.
Many have probably heard of recent spending overruns.
Spending, moreover, is set to increase by €3.3 billion or 4.5% in 2019, which is quite impressive sounding. But as a percentage of national income, which is much more relevant, it is set to fall considerably.
How this will impact the proposed move toward Sláintecare is anyone’s guess. Given
ageing pressures, one would expect health spending to increase, independent of any substantial improvements in service.
Social protection, the largest item, is set to fall relative to national income. While some fall-off is natural as the economy recovers and more people are employed, most of the savings arises from reductions in pension spending as the retirement age is due to increase to 67 in 2021.
Ireland is set to have one of the highest retirement ages in the developed world as the age is pushed further to 68 in 2028. This is despite highly favourable demographics which mitigate against such a high age.
This includes a young population and the highest fertility rates in the EU. Indeed if the demographic problem is so severe, then why is health spending set to fall?
As for housing, capital spending is set to increase by 24%. But, again, as a percentage of national income, little is to change. The government has committed to the ‘delivery of 10,000 new social homes’.
The word ‘delivery’ is important as it is not necessarily a commitment to build anything new, which could mean little prospect of significant price falls any time soon. Based on last year’s figures of approximately 1,000 local authority builds, that would translate into less than 1,300 houses for 2019 if the present composition of capital spending is maintained.
A sea change is required in how spending is currently allocated, namely toward more direct construction by local authorities, if supply is to increase and prices are to be brought down.
The ramping up of capital spending under the National Development Plan is welcome to redress years of underspend.
The slight increase in childcare spending is also welcome, but a long way off the Unicef goal of 1% of national income.
In the coming years, Irish people are admittedly likely to be employed but work longer, and continue to lag behind European neighbours in health outcomes.
Housing is unlikely to become affordable any time soon.
The idea that reductions in taxation generally translate into extra money in people’s pockets needs to be challenged. Despite strong headline growth figures, living standards in Ireland are actually below Italy and just a little above Cyprus.
The unwillingness of the government to raise and spend money to bring costs down by correcting market failures in housing, health, and other areas is a major reason.
And it is unlikely to change soon.
Robert Sweeney is an economist and policy analyst at TASC.
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The mission of TASC where the writer works “is an independent think-tank whose core focus is addressing economic inequality” yet the writer wants to continue inequality by having more social housing built for some and then other people paying for them through taxes. How is that equality?
@Greg Kelly: Where does he say that? If people on HAP payments weren’t competing against everyone else for the same rental properties then rent would be more affordable. If the government wasn’t planning on ‘delivering’ social housing by buying existing houses then presumably a person with a mortgage could buy that house. Fighting against building social houses is silly when it reduces affordability for everyone.
@neilo: don’t think any person has an issue with our society helping the sick, elderly and vulnerable and am sure we all want them to be looked after but the issue most people have as that those very people get left behind when those who won’t, but could contribute expect things for free and compete with those who need it most.
@Greg Kelly: Sick or vulnerable can mean a lot of things Greg….possibly more than your comfortable with
@neilo: they’re called hypochristians.
Ireland is mutton dressed up as lamb!
The CSO report that National debt at the end of Mar 2018 stood at €210.2 billion, much higher than 2008. If we don’t reduce it before the next recession we will experience a repeat of the debt spiral of the great recession.
@Charles Mount: That is when you savings will become a target.
@David Corrigan: Yes, like last time.
Time to put FFG out of office. Their just to comfortable bluffing the people..
There are just too many people making money off the way this country is run, the objective of FF and FG is to keep the system as is while making it look like they are trying to make things better when they have no intention to do so.
Blaming people of social welfare and Travellers is a tactic to take your focus away from the real source of the problem, the country is run for big business (banks, insurance, medical, utilities, developers, builders etc), the public service (ridiculous pay rates and pensions) and the very well off (billionaires etc). FF and FG serve these groups and they get well rewarded for doing so.
Because the cost of living in Dublin is similar to New York but the infrastructure is of an average Mongolian town.
numbeo.com/cost-of-living
@MadBit Dublin – UX Design & Development Studio: I love that comparison! So true.
Great article…. we hv people who have no idea how to run the country long term in goverment
In only 33 years Ireland’s population is estimated to grow by 1.8m (CSO)so if the National emergencies in Homelessness Housing and Health aren’t URGENTLY tackled in the next few years then when the next recession hits it will be catastrophic for society!
Also underestimating Homelessness by only using 3/7Categories of ETHOS Light typology is shameful,the true extent of Homelessness and Housing Exclusion should be one of top priorities of any responsible Government of Ireland!
All of society matters and it shouldn’t matter what background they have or political interests.Dividing society only deflects from crisis, emergencies and scandals!
In Ireland the rich couldn’t care less about the poor
Not improving
If our living standards are now improving why are our roads so full of late and why are there so many 17/18 reg plates?
@Peadar Farrell:
Because access to credit has improved.
@Peadar Farrell: the new cars are nearly all PCP financed. That allows people to walk away with a new car for just €200 per month albeit with a few potential pitfalls down the track.
FF and FG aren’t fit to run the country, simple as.
How can anyone write a piece where they claim that the living standards in Ireland are below Italy and above Cyprus and not give a source or even put them in to context. For Christ sake Italy could be number one on the list and we could be second.
@Darren Byrne: that explains why there are so many young italians living and working in Dublin.
All this government wants to do is to copy the UK and to privatise everything here, have those who buy everything here take loans from the IMF to buy everything here and use the government to turn these loans into austerity that makes the tax payer take the bill of privatisation as well as the fallout from it.
I don’t see why our living standards should be above nearly all of the countries who surpass us here.
@Seamus G: You tell people they never had it so good just before you bring in more tax to put on their heads… Normally to pay those in the Dails pensions and increase in wages…
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