It is important to note that the approach currently adopted in relation to setting out multi-annual expenditure ceilings is informed by lessons learned in the lead up to the fiscal and economic crisis. In the years preceding the crisis, large increases in expenditure were implemented on an annual basis, which ultimately proved to be unsustainable. Reflecting on this, there are clear risks to the expenditure position associated with restating expenditure ceilings, and for example applying inflationary increases, as a revised baseline for any new expenditure. This can lead to the expenditure ‘ceiling’ becoming a ‘floor’ from which to negotiate, which in turn can lead to unsustainable increases that are not affordable on a long-term basis.
To mitigate against this, the Summer Economic Statement 2016 set out an expenditure strategy for 2016 to 2021 in which current expenditure would grow by an annual average of 2 ½ per cent. This approach has been adopted in each annual Summer Economic Statement produced since. While there have been variations from the expenditure targets set out in the publications, these have been largely driven by policy decisions to support key Government programmes. For example, additional funding has been provided for our Health Service and increased investment in public capital infrastructure reflecting the allocation of additional resources set out in the National Development Plan.
Work is underway on the Summer Economic Statement (SES) 2019. In setting out the Government’s overall fiscal strategy in the SES, I will take into account recent developments, in particular in the external environment, and I will consider carefully the points raised by the Irish Fiscal Advisory Council in its recent fiscal assessment report.