Mr. Seamus Coffey:

The council thanks the Chairman and members for inviting us to meet the joint committee to discuss publicly our pre-budget 2020 statement which has just been published today. Joining me are Mr. Michael Tutty and Dr. Martina Lawless who are both council members and Dr. Eddie Casey, our chief economist and head of secretariat. Other members of the council’s secretariat are also present: Mr. Kevin Timoney, Ms Ainhoa Osés Arranz and Mr. Killian Carroll. We continue to value these engagements.

It is important to note that the council’s mandate does not cover commenting on the choice of individual tax measures or spending items and priorities but rather commenting on the overall fiscal stance. Our report’s assessment is based, first, on an economic analysis which assesses the appropriateness of the fiscal stance in the context of the principles of sound economic and budgetary management and, second, on an assessment of whether the Government’s fiscal plans are in line with the requirements of the budgetary framework.

Starting with the macroeconomic context, the council assesses that the domestic economy continues to perform strongly and even risks overheating, yet the international economic outlook has deteriorated in recent months. While the situation is volatile and evolving, the risks of a hard Brexit is high. Ireland’s net debt ratio is the sixth highest in the OECD, at close to 90% of national income, while the pace of Government spending increases has been fast in recent years, accelerating from 4.9% in 2015 to 6.7% in 2018. This partly reflects large in-year spending increases over and above what had been budgeted for, including in health. In recent years Government revenues have been boosted by unexplained corporation tax receipts and a strong bounce back in the economy. These gains are likely to prove to be temporary. Corporation tax receipts accounted for a record 18.7% of taxes in 2018 and carry lots of risks. Recognising these temporary gains, the underlying budget balance appears to have deteriorated since 2015. Further spending slippages are likely to happen again in 2019. Another health overrun, the payment of the Christmas bonus and underestimated social payments could mean higher spending of €1.3 billion than previously budgeted for this year.

The council is of the view that repeating the pattern of slippages would be inappropriate. It could add further to overheating pressures and reduce scope for budgetary policy to support the economy in the future. The Government must deliver on its spending plans for 2019. If spending overruns occur, the Government should find offsetting savings in other areas. It should not rely on further surges in corporation tax receipts, which could prove to be unsustainable, to fund slippages. For 2020, the Government should stick to its plans for a €2.8 billion budgetary expansion compared with the planned 2019 level. This would mean a budget day package of €600 million, given that a sum of €2.2 billion has already been pre-committed. The €2.8 billion budgetary expansion would be slightly below the sustainable growth rate of the economy. It would also reflect the risk of a disorderly Brexit, the reliance on corporation tax receipts, possibilities of overheating and the rapid rise in spending between 2017 and 2019. There is a case for more caution, given the risks posed by Brexit and the worsening global outlook. If spending overshoots in 2019, the Government should scale back its pre-commitments for 2020. Brexit could mean severe budgetary costs. A large budget deficit could emerge due to falling taxes and rising unemployment-related costs. This is even before potential customs infrastructure and supports for hard-hit sectors are considered. The Government might need to cut spending or raise taxes to prevent debt ratios from rising. Measures to deal with the costs of a hard Brexit should, however, be accommodated as far as possible. The council has repeatedly criticised the Government’s medium-term plans for not being credible. The Minister has noted that some of the concerns raised by the council are being explored. The Government should follow through on indications that it will develop a more credible medium-term plan in time for budget 2020.

I again thank the committee for giving us the opportunity to attend the meeting. We look forward to the members' questions.