Michael Taft: The Budget In Three Charts

at

From top: Minister for Finance Paschal Donohoe unveiling Budget 2019 at Government Buildings last week; Michael Taft

After all the post-budget commentary – the articles, interviews, studio debates – I’ll attempt to summarise the broad direction of the budget with three charts based on the detailed tables at the end of the budget’s Economic and Fiscal Outlook.

These are the Government spending projections. I have used the GDP deflator for inflation and the IMF’s population projections.

Capital Investment

After the slashing and burning of public investment during the austerity years the projected increase in capital spending is welcome.

Investment is projected to increase by nearly 50 percent in real (i.e. after inflation) terms per capita out to 2023. Of course, we still need a debate over the best use of that money but the large envelope is certainly what the economy needs.

Public Services

Projected spending on public services (Government consumption), however, tells a far different story.

The Government’s projection will result in a real cut of nearly 8 percent in spending on public services per capita. This will occur at a time when a rising age demographic will require even more age-related expenditure.

Social Protection

Social protection payments will experience a similar trend as spending on public services.

Like public services, the Government’s projection will see total social protection payments cut in real terms per capita. This includes both cash transfers and benefits-in-kind. Again, this is taking place against rising pension payments.

* * *

The story is simple. The increase in capital spending is being funded by real cuts in public services and social protection. We should note, however, that the Government has given itself some wriggle room.

They have pencilled in €3.6 billion in ‘unallocated’ spending in 2023. But even if this were to be divided between public services and social protection, they would still experience real cuts.

And the Government still has fiscal space that it doesn’t intend to use. But dipping into that could undermine their plans to run strong surpluses.

So these are just projections. And there is always the danger of external shocks. Even a ‘soft-Brexit’ could see revenue decline and spending rise (through business closures and job losses). In the event of a ‘hard’ or ‘no-deal’ Brexit, all bets are off.

The point here is that the Government’s starting point is to squeeze public services and social protection to pay for increases in public investment.

That’s their strategy. It may not finally come to that. But it won’t be want for planning it.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front.

Rollingnews

8 thoughts on “Michael Taft: The Budget In Three Charts

  1. Jake38

    Good to see spending on social protection falling. No doubt due to the rapid increases in employment in recent years.

  2. Kev

    Can you explain exactly what figures you are using to produce these charts. It seems quite incredible that you claim social protection is being cut, when there was increases in the budget.

    1. Cian

      This seems to be based on a per capita basis. The population is projected to grow at about 5% per year.

      If spending increases by 3%; but the population increases by 5% then there is a per-capita drop of 2%[1]

      [1] numbers are approximate.

    2. Michael Taft

      Kev – this refers to spending for all Social Protection expenditure (cash transfers and benefits-in-kind) factoring in inflation (GDP deflator: 10.8% over the six years) and population growth (6.1%). The nominal data (that is, without inflation and population) can be found on page 22 – Table 11 of the budget paper I linked to in the post.

  3. Cian

    At the moment we are paying a lot of money for the homeless – i.e. paying over-the-odds for hotels and HAP and emergency accommodation services.

    If we invest over the next 5 years in social housing this will show as a large increase in capital expenditure.
    As these homes are built this will decrease the day-to-day social expenditure [once built the cost to house someone is a lot less on an annual basis].

    If this happens then the outcome would be charts as you produced above. The question we should ask is – if housing is removed from the figures – what do the charts look like.

  4. Michael Taft

    Cian – I’m unsure. However, given the strategy of Rebuilding Ireland, HAP will increase substantially. Even social houses are a current cost since they are charged in many cases below the economic rent – which counts as a benefit-in-kind (though I don’t know if that counts under Social Protection or housing).

Comments are closed.