Mr. Seamus Coffey:

On our view regarding an inevitable slowdown in the economy, we are not necessarily saying that a downturn and return to negative growth is inevitable but we do think a slowdown in growth is inevitable. We have had very strong growth for four or five years, with the economy growing above its potential for a sustained period. No economy, not even Australia, can grow above its potential forever. If an economy could do that, its potential should be higher. Our view is that there will be a slowdown in growth, including employment growth and increases in domestic demand given the high rates we have experienced recently. We should not be expecting, as happened in recent years, to be able to continue with the rapid expansion in budgetary measures we have experienced in the past number of years, which we are now measuring with this new measure of net policy spending. We are trying to look at the impact of policy decisions on the level of spending by the Government. There are various reasons why Government spending changes, outside of policy.

Earlier, we were asked about changes in unemployment and the level of unemployment. If unemployment was to rise, we would not view that as a policy change. Currently, unemployment is decreasing and the savings being made do not constitute a policy change. We subtract those savings and take them out. Equally, if there was to be a slowdown and unemployment was to increase, we would not take the view that this should detract or subtract from the amount of the so-called fiscal space because that is separate. Also, Government spending can fall because of changes in interest rates. Again, that is not a policy change. It is based in the external environment when it comes to refinancing debt. We take both of those areas and we look at the policy measures, including the change in spending after adjusting for unemployment and interest. We also look at the change in revenue, particularly the change in revenue measures. For example, when looking at a measure of policy spending, we tend to reference spending but we are looking at both the tax and spending sides. We use shorthand. A tax cut is spending fiscal resources. We combine those to get the change in the adjusted measure of spending that is the result of policy, including what decisions are being taken and what might be the outcome. For example, in recent years the rate of spending increase has been accelerating. Throughout 2015, 2016, 2017 and 2018 Government expenditure growth has been accelerating but on the tax side, things have been changing. Budgets 2016 and 2017 were revenue reducing in that they provided for income tax cuts, which reduced the level of revenue. Budgets 2018 are 2019, however, have been revenue increasing on foot of the stamp duty change in 2018 and the increase in the VAT rate for the hospitality sector in 2019. Even though the rate of spending growth has been accelerating, once an adjustment is made to take account of that change in revenue the rate becomes quite flat but as it is flat at 5%, it is relatively rapid. What we are trying to do is assess the impact of policy on the level of spending. For the last number of years, it has grown at 5% in real terms, which we consider to be above the sustainable growth of the economy. For 2019, it is forecast to grow at 3.5%, which is, perhaps, right at the limit but we always have the issue of the Christmas bonus. We were asked why is it not in the budget but it seems to be a historical fact that we would like changed. Another issue is the possibility of health overruns. We are already starting at the limit for 2019 and it could be higher. The purpose of this measure is to isolate the impact of policy on spending changes because Government spending changes for a variety of reasons. We think it is a useful addition and one we intend to use into the future.