Ibec’s strange call for increased government spending

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By Cormac Lucey

In its pre-budget submission for next year, the Irish Business and Employers Conference (Ibec) has called on finance minister Paschal Donohoe to include the whopping 2015 GDP growth rate in the way he calculates permitted spending under European Union fiscal rules. This would allow the minister to spend an additional €7.2bn between 2018 and 2021.

Government’s own estimates of the net fiscal space — spare capacity for increased spending or reduced taxes — will be €11.3bn per annum by 2018. Ibec estimates fiscal leeway that year of €15.3bn. Government figures indicate headroom by 2021 of about 20% of existing total spending, current and capital, while Ibec suggests 27%.

I can understand the instinct to correct an error made by government officials, but not the political sense of a business lobby suggesting to government that it can and should spend more. Nine years after the financial crisis broke out, Ireland is still running a government deficit. Everything about the political system encourages politicians to spend ever more. And now Ibec turns up at the fiscal branch meeting of Alcoholics Anonymous with a case of whiskey saying a 20% spending increase over four years isn’t enough, we want 27%.

This year the government is budgeting on taking in €20.2bn in income taxes and universal social charge. That’s 49% higher than receipts from those sources at the peak of the boom in 2007. If, as a matter of principle, the government agrees with pay restoration for public servants, should it not therefore also favour tax restoration for those whom it identifies rhetorically as its masters, the people of Ireland?

Published in The Sunday Times (Irish edition) July 30th 2017

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