Budget 2019 will pose a different set of problems for Fine Gael
HEALTHY State coffers and extra spending wriggle room mean a new set of problems in October’s Budget, and experts are wary.
Budget 2019 may seem a long way off. We’ve just emerged from a long winter, and the heady days of summer are ahead of us.
Why, you might ask, has the country’s leading economic think-tank already got one eye on the October Budget?
Because 2019 presents a potential new political challenge, and it’s one that will test Fine Gael’s (assuming there isn’t an election beforehand) claim that it is the responsible guardian of the State’s finances.
The Government will have the capacity to play around with a fairly decent pot of money – more than double this year. The budget deficit is close to being closed and the amount of so-called fiscal space (the amount of money available to the Government for new measures while complying with EU budgetary rules) in 2019 will amount to €3.2bn net. It will increase further in 2020 to €3.4bn.
The economy is growing strongly. The ESRI is forecasting growth of 4.8pc this year, and 3.9pc next year despite Brexit. Unemployment is set to dip to 4.5pc on average.
In headline terms, the ESRI believes the economy will have finally shaken off the crisis that enveloped it in 2007.
But that doesn’t mean the Government can splurge on things like tax cuts while also plugging gaps in public capital spending, the ESRI stresses.
The problem is that with the budget deficit now almost closed, there may be political and public pressure on the Government to loosen its hold on the public finances.
Politicians will no longer be able to blame the Troika for its budget decisions, or the EU for tying its hands when it comes to spending.
And the ESRI and others, including the Fiscal Advisory Council, are aware of that risk.
The think-tank is calling for budgetary restraint, and said the Government should consider not using up all of the fiscal space.
That will potentially be a tough ask for the Government, particularly as Budget 2019 could be Fine Gael’s final budget under the confidence and supply arrangement with Fianna Fáil, and an election could be on the horizon shortly thereafter. The Government is already planning to ramp up spending on infrastructure gradually over the coming years as part of a massive €116bn plan to deal with a shortage in spending over the last decade.
In theory, that is legitimate spending, and will be good for the economy in the long term. We’ve replaced the problems of the crash with those of a thriving economy. But we’ve been feeling the effects of a dramatically scaled-back infrastructure spend, with too few houses the most obvious example of that.
If we hiked capital spending, current spending and threw in tax cuts for good measure, we’d risk overheating the economy and repeating the boom/bust mistakes of the past.
The Government has insisted it is attuned to this. Time will tell.
Budget 2019 may seem a long way off. But it is right to have the conversation now.