Parliamentary Budget Office publishes Budget 2019 – Issues arising for Members of the Houses of the Oireachtas

The Director of the Parliamentary Budget Office, Annette Connolly, commenting on the PBO’s analysis of Budget 2019 stated that:

“Budget 2019 was framed in the context of continued strong macroeconomic and fiscal indicators. However, there are significant external downside risks to the economy such as a ‘disorderly’ Brexit. In the context of the uncertainty regarding the outcome of the Brexit negotiations, it is of concern that the forecasts underpinning the Budget are based on the central scenario of an ‘orderly’ Brexit.

Also of concern is the fact that it is proposed that this year’s expenditure be increased by over €1 Billion - when Supplementary Estimates come before Dáil Éireann in the coming weeks. This proposed increase, if approved by the Dáil, will obscure the scale of the increase in Voted allocations in 2019, especially in Health. These increases are being funded by greater than expected Corporation Tax receipts and other volatile sources of revenue rather than by more sustainable sources.”

The key issues identified by the PBO are:

• The macroeconomic and fiscal forecasts underpinning Budget 2019 are based on the assumption of an ‘orderly’ Brexit (that is, a transition period will be maintained until end-2020 with a subsequent trade agreement between the UK and the EU entering into force thereafter). In light of the considerable uncertainty regarding the nature of the future relationship between the UK and the EU, it may not be prudent to plan on the basis of an ‘orderly’ Brexit. The PBO would also caution that conventional economic models may not adequately capture the impact of the unprecedented shock that a disorderly Brexit represents.
• While consistent with the EU fiscal rules, there is little evidence that a counter-cyclical fiscal stance has been pursued in Budget 2019. Additional or ‘windfall’ revenue for 2018 has been used to fund additional voted current expenditure (in particular Health).
• Questions remain regarding the sustainability of the revenue base. Revenue forecasts in Budget 2019 are based on continued future economic growth. The PBO has highlighted that there are several downside risks that, if they were to materialise, could quickly translate into lower economic activity and thus lower Exchequer revenue. In particular, Corporation Tax receipts are heavily concentrated on a small number of foreign-owned multi-national companies, and those employed by these companies contribute a substantial share of Income Tax, USC and PRSI receipts. 
• Budget 2019 has prioritised spending on Health and Housing, Planning and Local Government, relative to other Vote Groups.
• There is a need for better financial management. The PBO would question whether sufficient action has been taken with regard to accurately estimating in-year allocations for certain Votes. In particular, concern has been raised in relation to the management, accountability and transparency in the Health and Justice sectors. The PBO notes that a Supplementary Estimate of at least €700 million in Voted current funding will be required for the Health Vote later this year, and that this will effectively form part of the increase in the 2019 allocation.
• Improvements could be made in the reporting of budgetary information.  The PBO’s view is that it would be helpful to review the Budget documentation submitted to the Houses to ensure that it is more closely aligned to the processes of parliamentary engagement, scrutiny and approval. Such a review could include a role for the Houses of the Oireachtas and specifically the Select Committee on Budgetary Oversight.
• There is scope for greater use of evidence in public policy-making, and for a more systematic approach to ex ante and ex post policy evaluation. In this way, existing Government resources and structures could be better used to enhance the scrutiny and assessment of public spending.
• The PBO welcomes the announcement made by Government in respect of Green Budgeting, in line with a recent PBO publication on climate proofing the Budget. However, there is additional progress to be made in relation to Equality and Gender Budgeting. This may involve, for example, the use of the ESRI’s SWITCH model to assess the impact by gender of future Budget proposals. 

The publication can be found on www.oireachtas.ie/pbo.

For the attention of editors

Established in August 2017, the Parliamentary Budget Office is a key source of financial and budgetary intelligence for Members of the Oireachtas and in particular for the Dáil Committee on Budgetary Oversight as it conducts ex-ante scrutiny on budgetary matters. It is an independent specialist unit within the Houses of Oireachtas Service.

The need for the office was identified by the OECD in its review of budget oversight by the Irish Parliament. The Oireachtas Sub-Committee on Dáil Reform, in its final report in May 2016, recommended that the office be established.

The PBO has published a wide range of publications and these are available on the Houses of the Oireachtas website.