Ireland runs risk of austerity-era spending cuts, economist to warn politicians

Politicians will be warned today that Ireland runs the risk of austerity-era spending cuts if it continues with existing expenditure plans.

Stephen Kinsella, Associate Professor of Economics at University of Limerick, will address the Budget Oversight Committee on the same day as the Government publishes its Summer Economic Statement.

In his opening remarks, Mr Kinsella will call on politicians to introduce fiscal tests to deal with volatility in tax revenues.

He will tell TDs and senators that: “Ireland risks replaying the 2007-9 period of dramatic cuts to public expenditure on its current forecasted path of spending increases.”

Mr Kinsella will call on politicians to introduce automatic rules that would set “ceilings and floors” on spending to deal with increased volatility.

He will say that the “time to implement this methodology is now when the State’s finances are strong”.

Ireland needs a more robust fiscal system to withstand economic shocks, Mr Kinsella will say.

This system should comprise a medium-term strategic arm, an accounting and verification arm, and the annual budget cycle.

“One key tool in discovering where we are weak is the fiscal stress test.”

Such tests examine the effect of spending increases at the same time as drops in tax revenue and calculate the additional amount the State will have to borrow.

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