Ireland's introduction of substantial and permanent increases in spending as it battles the COVID-19 pandemic without a plan to finance them is a risky strategy, the country's fiscal watchdog warned on Tuesday.
Like other countries, Ireland has spent aggressively to contain the crisis with billions of euros in emergency jobless benefits, wage subsidies and business loan guarantees, turning last year's budget surplus into a forecast deficit of 10.7% of modified gross national income for 2020.
The Irish Fiscal Advisory Council (IFAC) said the decision in last month's budget to continue the temporary supports into next year, alongside measures to stimulate demand, was appropriate.
It raised concerns, however, over permanent spending increases of at least 5.4 billion euros, including spending not related to COVID-19 and hiring in health, education and other areas, that represented about a quarter of the unprecedented 25% increase in expenditure since 2019.
"This spending is likely to remain long after the pandemic. The increases are surprisingly large in the context of uncertain growth prospects and compared to previous budgets," IFAC said in its post-budget fiscal assessment report.
"Permanent spending increases - without a sustainable plan to finance them - are not conducive to prudent economic and budgetary management," it added.
IFAC said its simulations suggested a return to austerity could be avoided in most scenarios but that with so much public spending accounted for by recurrent items, the scope of temporary spending reductions seems modest.
The government has also ruled out tax increases and spending reductions across large parts of its tax base and existing spending areas. It should therefore produce a more comprehensive spending review next year, the council recommended. (Reuters)