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Fiscal Council raises red flag at lack of plan to pay for the Budget promises

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Ministers Paschal Donohoe and Michael McGrath failed to account for how big hikes in Health and Education spending announced in Budget 2021 will be paid for into the future, the Irish Fiscal Advisory Council has warned.

The Council, chaired by Sebastian Barnes, raised serious question marks over elements of the record near- €18bn of additional spending in Budget 2021 this week – and in particular about what it notes is permanent spending that will be repeated year after year, rather than one-offs to tackle Covid or Brexit.

“The recurring spending increases include €1.8bn in Health spending and €0.5bn for Education plus Research, Innovation and Science areas,” it notes.

“There is little indication of how these increases will be financed on a sustainable basis after the immediate crisis has subsided and once the recovery has become well entrenched.”

The Council was launched after the last crash to warn governments and the public about any reckless public spending.

It doesn’t take a view on whether spending decisions are correct, but will raise concerns if it does not see realistic tax policies put in place to match long-term spending plans.

The Council published a reaction to Tuesday’s Budget on its website yesterday, which it named A Visual Summary of Budget 2021. The article provided charts of the spending measures outlined, as well as some further information and commentary.

Overall, the Budget broadly followed the stance that had been recommended by the Council, including using a deficit in 2021 to support an economic stimulus package funded by borrowing to help pull the economy out of the slump triggered by the Covid pandemic.

The Council noted the plans in Budget 2021 regarding supports to the economy, stating: “Temporary and targeted budgetary supports should remain broadly in place to support vulnerable workers and businesses for as long as is needed, even if there may be scope to adapt them as circumstances evolve.”

However, the body warned that some of the big spending announced in the package may be difficult to switch off, even once the economy has recovered, and would then also need to be funded.

“There is also a risk that some of the spending related to Covid-19 becomes more long-lasting than is currently planned.”

The Council wants action from Government on a strategy including managing the national debt, reviving the Rainy Day Fund for future emergencies and introducing “sustainable spending limits” for future Budgets.

Irish Independent

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