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Fiscal watchdog criticises 'surprisingly large' public spending by government unrelated to Covid-19

The IFAC warned that new levels of spending will remain after the pandemic.

Image: Shutterstock/Andrey_Popov

THE IRISH FISCAL Advisory Council has warned that the Government has committed to permanent increases in public spending without a plan on how to fund them.

In its latest fiscal assessment report, the council said that Budget 2021 includes “substantial and permanent increases” in spending amounting to €5.4 billion which is unrelated to the Covid-19 pandemic.

The council said that this level of spending will likely remain “long after the pandemic” and described it as “surprisingly large” in the current economic climate.

The spending relates to additional budget allocations for spending and hiring in the areas of health, education and other areas sectors.

The council also urged the government to clarify how these increases in spending will be funded sustainably and how other fiscal challenges will be addressed.

“These permanent measures are substantial. There is no sense as to how this spending will be financed sustainably over the medium term. These unfunded commitments will add to future fiscal pressures,” the council said.

The council also noted that these increases could even be as high as €8.5 billion, because it was not possible to ascertain the nature of some increases in non-Exchequer areas.

It said this reflected “ongoing transparency problems” in areas outside of the Exchequer that are traditionally not the focus of the Department of Finance.

And the watchdog called on the Government to clarify its medium-term strategy on how to finance increases in public spending at the next Stability Programme Update in April 2021.

However, the council also welcomed increased spending on pandemic-related supports, which it said had ”cushioned the impact of the unprecedented fall in demand for workers”.

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It said that such measures, while costly, should help support economic activity and lessen the lasting economic damage of the Covid-19 pandemic.

It says the additional spending is necessary to support the economy and “limit lasting damage from the crisis”.

The council also forecast that in the best case scenario, where a Covid-19 vaccine is rolled out next year and there is a free trade agreement between the EU and UK, Ireland’s economy will recover to pre-pandemic by early 2022.

But it also warned that a worse-case scenario where there are multiple waves of the virus and a hard Brexit may not see Ireland’s economy recover until 2023.

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