The Stability Programme Update, the latest economic and fiscal projections, signals the start of the budgetary politics that will inform the next Government. In particular, it shows the level of money available for the Government for spending increases and tax cuts. Speaking in the Dail yesterday, the Finance Minister stated:
‘On foot of these changes, my Department currently estimates the net fiscal space to be somewhere in the region of €10 billion to €11 billion over the period 2017 to 2021.’
Remember all that stuff about the fiscal space during the election? It was stated that there would be €8.6 billion available over the next five budgets. This has been increased by approximately €2 billion due to changes in the complex calculations. So, we have €10.5 billion.
An extra €2 billion: sound good? Not really – not when you look at the detail.
Let’s compare two main budgetary projections that were presented in Budget 2016 – only a few months ago – and the current projections published in the Stability Programme Update: investment and expenditure on public services (Government consumption).
Spending on investment and public services has been revised downwards in the current projections. The differences may seem small but it puts the increased €2 billion in ‘fiscal space’ the Minister referred to in perspective.
For instance, in the budget last year the Government projected investment spending over the five years to be €25 billion. They have revised this downwards to €23.5 billion – a cut of 6.2 percent. We’d have to increase investment by €1.5 billion just to get back to the projections in the budget – and that was already one of the lowest levels of investment in the EU.
Regarding expenditure on public services, over the five years the Government has revised this downwards by nearly €4 billion. Get the picture? Now let’s factor in inflation (using the GDP deflator – unfortunately, we don’t have an inflation projection for public services).