Eamon Quinn: Splurge after finding €1bn down the back of the sofa
Making a virtue of finding €1bn down the back of the sofa and seeking to secure political gain by using the bulk of the cash to shore up an out-of-control health service spending, Finance Minister Paschal Donohoe is getting away with the oldest of political strokes.
The minister announced late on Friday evening that he had unexpectedly found a tax revenue windfall to help plug yet another huge gap in the annual health budget after his own department failed again to police their health department colleagues and stop them overspending €700m to bring this small State’s annual health bill to €15.5bn.
The outsized stroke deserves an outsized condemnation. Friday’s announcement was the real budget, which poked fun at the weighty warnings from the fiscal watchdogs, think tanks, and independent economists against the Government pumping up spending.
Relying on a €1bn windfall sourced from early payments of future tax liabilities not yet made by corporations is the very definition of an unsustainable tax source. It’s the stuff of the many warnings made by the Economic and Social Research Institute, the budget watchdog the Irish Fiscal Advisory Council, and the Central Bank. To add to the ridicule, three-quarters of the €1bn sofa money will be tapped from profits of a single company. In this State, voters will never be told the identity of the company, a clear illustration of how entangled the State’s finances have become with a handful of multinationals.
On the revenue side, the windfall announced late Friday will bring overall receipts from taxing company profits to €9.5bn this year, up from the €8.5bn forecast in April, and a huge uplift of almost 16% from the €8.2bn raised from corporation tax receipts in 2017.
On the spending side, the health service will gobble up an increasingly large share of the cake. Officials say health is “a demand-led service” but never explain adequately how year after year they fail to rein in spending.
Pumping in €700m in to plug overspending in 2018 has a “carry-over” effect for the 2019 budget because it raises the level of overall spending. It would probably be more honest if the Government were not to set out a budget for health at all.
It’s not the first time an Irish finance minister has used the Friday evening before the ostensible official budget to torpedo the wise warnings.
Famously, three years ago, then finance minister Michael Noonan doubled his budget package to €3bn by announcing an additional €1.5bn in spending across all sorts of departments, including transport and health on the Friday before his budget. Mr Noonan gamed the EU spending rules by pumping up spending in advance of the introduction of the new rules.
There was no political cost to pay because, with an election pending, it would be a brave opposition politician to warn against additional spending, after the long years of austerity.
However, the risks of the Friday evening budgets and finding €1bn down the sofa are greater now.
The warnings of relying on buoyant corporation tax receipts by independent economists have been ignored.
In its own summer economic statement in June, the Department of Finance struck a prudent tone: No fewer than 15 times, its document mentioned the role of the proposed rainy day fund in “enhancing the resilience of the public finances”.
It went on: “It is a prudent measure being taken at a time when our public finances are relatively strong.”
Four months later, Mr Donohoe announced his Friday spending splurge based on corporation tax receipts.
WHAT THEY SAID AND WHEN
“As the Department of Finance has set out, receipts are highly concentrated with, for instance, the top-10 taxpayers accounting for 40% of receipts. This creates a vulnerability for the Irish economy; by setting aside money in the Rainy Day the risk of permanently increasing expenditure on the basis of transient receipts is reduced.”
“Corporation tax, a key driver of revenue over-performance in recent years, was again ahead of profile.”
“The high volatility and strong concentration of corporation tax receipts in few companies pose significant risks of sharp revenue falls.”
“However, with the infrastructural deficits in areas such as housing, and the potential adverse implications of Brexit, there is a case that Budget 2019 should be a ‘holding budget’ and should, therefore, look to neither inflate nor deflate the economy.”
