Lower share of GDP being spent on public services than when Labour in government
Joan Burton TD commenting on Summer Economic Statement
Under the Summer Economic Statement the share of public spending in GDP will decline from 28.9% in 2016 ( already one of the lowest in any advanced economy) to 25.3% in 2021.
The share of gross current spending in GDP declines from 26.7% in 2016 to 22.6% in 2021. Gross Capital spending increases from 2.2% of GDP in 2016 to 2.7 in 2021, however even this increase will leave it well below what is required.
Why is this happening? Because the planned growth in spending is only a fraction of the rate of growth in GDP. Between 2016 and 2021, Nominal GDP (cash value) increases by 29.3%. Over the same period the planned increase in gross current spending is 9.6% and taking account of the faster increase in capital spending, total gross expenditure increases by 13.3%.
The SES strategy is grounded in the EU fiscal rules and specifically the Expenditure Benchmark Rule (EBR). The EBR says that, unless funded by additional taxation measures, spending should only grow in line with the sustainable or trend rate of growth in the economy (GDP). If this rule is follows then the share of public spending in GDP will remain broadly stable.
However, the government plans to allocate only half of the fiscal space (51%) to increases in spending. 23% of the space or 2.54 billion is allocated to abolition of USC in a way which favours the better off. (Indexation of the tax system could be achieved for about 1.8 billion).
23% of the fiscal space is allocated to the rainy day fund (3 billion). This is totally unnecessary since adhering to the fiscal rules is sufficient to keep the public finances safe.
To allocate so much money to a rainy day fund is ridiculous when the need to restore public services is so acute.