Boom and bust cycle doomed to repeat themselves?

So much for the quietest budget of recent years: today, IFAC has launched a bombing of the 2019 budget.

This is the most severe criticism of a budget since November 2015.

And for a government that has talked a lot about ending the boom-bust cycle of Irish economic history, the most hurtful criticism is that it repeats the mistakes of the past and institutes exactly the type. of evolution that we have known before. .

In particular, he criticizes the budget for an increase in spending well beyond the appropriate levels, or even levels that the government's own plans have targeted.

The blame finger clearly indicates the inability to contain the expenses of the Ministry of Health.

On average, this lack of cost control costs 500 million euros per year since 2014. For this year (2018), this figure will be 600 million euros, after taking into account the savings made in from other departments. This means that health outcomes for 2018 will be about 9.3% higher than the spending ceiling set in the previous budget.

So far, the government has not resorted to this kind of increase, because the corporate tax is still imposed unexpectedly.

2019 Budget "Non-prudent economic management" – IFAC

Ideally, these extra revenues would be used to reduce the debt, which would give the government more space to run a deficit and spend money in the next downturn.

It's the so-called counter-cyclical approach that has been talked about a lot in the last decade.

But if the Budget Council is right, we are moving towards an old-fashioned procyclical policy: reviving spending when the economy is booming ("when I have them, I spend them", as the # Charlie McCreevy said, go back to austerity when the downturn will occur, cutting spending and raising taxes, and worsening the recession.

The Budget Council has warned of these dangers for two years, but now seems to have lost patience with a government that has stopped claiming to stick to the fiscal rules and its own budget plans, as stated in the stability program update. and the summer economic statement.

The last time he came into a government like this, it was in November 2015, in his badessment of the 2016 pre-election budget. Is the 2019 budget also a pre-election budget?

While other small European economies have already adopted decisive budget surpluses to prepare for the next economic slowdown, the Irish government has daily benefited from the benefits of extremely low interest rates and the very rapid growth of the economy. Employment (heavier taxes and reduced social protection expenditure) expenses.

Interest rates will rise, a recession will occur, unemployment will rise, incomes will fall, companies will not always declare record profits, some will go bankrupt, Brexit could make things worse, just like a commercial war or a radical international tax changes.

All of these things could happen at the same time. The resilience of public finances – and their ability to protect the entire economy in the event of an economic shock – is not as good as it could have been.

In the past, there will be more spending overruns in 2019.

First of all, there is no financial provision for the Christmas social security premium of around 300 million euros. And then there is this annual budget overrun of 500 million euros established long ago. It's not hard to imagine circumstances in which a big hole could open up very quickly in public finances.

The Budget Council said that there was still time to remedy the situation – pretty much.

Its role as the guardian of the budget is to issue warnings when fiscal policy is about to derail.

Today's report is a 179-page warning about our fiscal vulnerability.

Do not say you have not been warned