ANOTHER wake-up call for the new government came this week in the form of the Irish Fiscal Advisory Council’s (IFAC), tenth Fiscal Assessment Report, which noted the lack of detail on costings for the policies agreed by the various parties to ‘A Programme for a Partnership Government.’
Without proper costings, it is impossible to predict if Ireland would be able to comply with the strict fiscal rules it needs to abide by in order to maintain the recovery and to see more people benefitting from it, as well as reducing the national debt further. Just to maintain the current level of public services and benefits, taking into consideration demographic changes and price inflation, IFAC estimates that an additional €6 billion of public spending will be needed by 2021.
This will be added to by the demands for public sector pay increases after 2018 when the existing arrangements with unions expire. Even though a welcome commission on public sector pay is planned in the interim, the concession last week of an 18% pay increase over the next four years to Luas tram drivers in Dublin is bound to fuel the demand among workers generally for pay increases.
Tax receipts to the end of May are €774m ahead of target, but there are a lot of still unquantified demands in the new programme for government to be met and there is also the need for a so-called rainy day fund in order to buffer the economy against any external shocks that may occur in the future. We would be very foolish not to consider this given that the favourable winds which have driven our exceptionally-strong growth rates of the part two years will not be behind us forever.
The last government coalition of Fine Gael and the Labour Party did not always heed the advice of IFAC, sneaking in supplementary estimates below the radar, but the new administration needs to take notice of its recommendations.