Recently, on the Week at Work podcast, I did a review of the alternative budgets produced by the four main opposition parties: Sinn Féin, Social Democrats, Labour, and People before Profit.
Afterwards, I got a call from the Sinn Féin spokesperson for finance, Pearse Doherty, telling me that my analysis and my figures were way off and that my comments regarding the fiscal side of their budget were simply wrong.
In an effort at openness and critical review, I’m going to present here the analysis I did that led me to the conclusion that the Sinn Féin alternative budget for 2022 has a €2.7bn hole in it, which possibly could be reduced to €1.1bn through a strained and very generous interpretation of a budget table.
Whereas Labour and the Social Democrats provide for their additional measures in core expenditure through a mix of fiscal space funds, new taxation, and new borrowing, Sinn Fein does not have a dedicated line item on borrowing for core expenditure and I think that is where the gap lies in their budget.
Now, my analysis may be wrong, and of course it’s entirely possible I have missed something obvious, and so the analysis below tracks my thought process and analysis in the hope of revealing where I may be in error.
By Way of background
Budgets are largely technical things. They are bound by certain rules and criteria that are followed for the most part by all political parties in Ireland.
They are not without controversy, especially given the type of conservative, right-wing thinking that permeates the economic and statistical professions, not just in Ireland of course but across the world.
However, for the purposes of this analysis, I am going to take the rules of the game as they stand, including the fiscal space rules which came to prominence in Ireland in the wake of the 2008 financial crash and subsequent Troika bailout.
In the words of the Financial Council:
...the definition of fiscal space that has emerged in the Irish policy context is that of an estimate of the scope for future spending increases or tax cuts possible while complying with the domestic and EU fiscal rules.
It can be further described in gross or net terms:
– ‘Gross fiscal space’ refers to the scope available before any relevant precommitted tax/spending changes are included;
– ‘Net fiscal space’ refers to the remaining scope available after these precommitments are included (e.g., after including expenditure increases to address demographic changes, agreed pay rises, etc.)
The fiscal space, then, is an estimate of the annual scope for growth in government expenditure that is allowed under EU budget rules – anything more than this has to be funded by new taxation, not borrowing.
In terms of Budget 2022, the Department of Finance calculated the fiscal space as:
Gross fiscal space – €4.7bn
Pre-committed expenditure – €3.2 billion.
Net fiscal space – €1.5bn
what is pre-committed expenditure?
There are four elements to pre-committed expenditure. These are:
– Demographics (growth in population pressures)
– Carryover and other Existing Level of Service (ELS) pressures (expenditure to keep things as they are)
– Allocation from Central Pay Agreement Provision (the public sector pay agreement)
– Core National Development Plan Increase (ongoing work on multi-year projects covered by the National Development Plan)
The figures for these pressures are available in the Budget 2022 Expenditure Report which is published on the day of the budget.
The figures are contained under each departmental heading in “D. Reconciliation of 2022 Expenditure Ceiling”.
For example here’s the one for education with the pre-committed expenditure line items in yellow:
I’ve highlighted two other line items, this time in blue. They equate to the figure for the amount of new funds the government has allocated to education while staying within the fiscal rules and not raising taxation – in this case, €39m which the government has broken up in the following way: €37m current, and €2m capital.
The pre-committed expenditure for education, therefore, comes to €403m in current spending, and €50m in capital, with a net fiscal space spend of €39m.
To use the template from above, for education this is equal to:
Gross Fiscal space – €492m
Pre-committed expenditure – €453m
Net fiscal space – €39m
This process is replicated across all government departments.
As part of the research for this post I went through the Expenditure Report and added up all the departmental spends on pre-committed and new expenditure. These are the totals I came up with:
Added together, we arrive at these totals:
Pre-committed Expenditure – €3,067
New Additional Resources – €1,698m
Total Spend – €4,765m
Now, there’s an issue here because the government announced around €500m in tax cuts which means that the total spend should be in the region of €4,200m.
It appears that the way the government squared this circle is with a line item in the Social Protection budget, where they say they have a saving of €564m in ELS pressures related to pensions:
When we take away the €564m from the total spend figure (as recycled monies) we get a total new spend in 2022 of €4,201m, which is in line with the government projections for the fiscal space. Now, I’m assuming that this is the case, it may not be, but the numbers add up so I’m working off the conclusion that with this line item the government budget (eventually) ticks all the boxes.
So, in conclusion, the pre-committed expenditure element of Budget 2022 comes to around €2bn in current spend, and 1.05bn in capital spend – a total of around €3.05bn which must be accounted for before any new spend is made.
Before I go on to the Sinn Féin budget, it is important to note that all parties prior to the budget worked off the assumption that the pre-committed expenditure would be €3.2bn, with net fiscal space at €1.5bn.
That will explain the slight difference between the figures we have now and the assumptions pre-budget.
And to complicate thing further, the figures from the budget will themselves be revised in November. So, keep in mind the ballpark figures as they’ll be the ones that Sinn Féin and the other parties used.
sinn féin budget 2022 line items and expenditure
There are 187 line items in the Sinn Féín alternative budget. These are broken down as follows:
Current – 137 items which come to €2.734bn
Capital – 46 items which come to €2.931bn
Tax Expenditure – 4 items which come to €432m.
This gives a total new spend of €6.097bn.
Here’s a breakdown of the spend by department.
I’ve also did up a spreadsheet of Sinn Féin’s line items, plus totals. I did this to see if the funded line items relate to pre-committed expenditure, and they don’t. All the expenditure in the line items is additionality.
The total spend in the line items roughly matches the table on page 7 of its alternative budget, which appears to set out a total budget package of €6.2bn .
This is made up of the total gross fiscal space of €4.7bn plus €1.5bn in additional funds, which appears to be from net new taxation.
(Sinn Féin raises €1.906bn in new taxation, and spends €432m of that on tax breaks, giving a net new taxation of €1.475bn).
I have to admit, this table is confusing to me. It appears that Sinn Féin has mislabelled pre-committed capital spend under the National Development Plan as ‘core capital investment’. It seems it has treated that €1.1bn as if it is discretionary spend under the fiscal rules.
All other parties, including the government, have pre-committed expenditure at €3.2bn – made up of €2.1bn in current and €1.1bn in capital. And we can see from the actual budget that these figures are roughly in line with the expenditure reports.
In other words, from what I can see in the table above, Sinn Fein has spent €1.1bn twice.
I think this is the case because Sinn Féin has €2.9bn in additional capital spend, and so has not allocated any funds to pre-committed capital expenditure.
The capital expenditure line items (€2.931bn) match the table (€2.9bn) once rounding is taken into account.
There is also no line on borrowing in this table.
I have been studying this table now for days and maybe the €1.5bn in black refers to borrowing? Is it saying that after tax revenue is accounted for there is a €1.5bn shortfall? Is that why tax revenue is in minus?
But, I’m guessing and in an alternative budget I shouldn’t have to guess as to the funding intentions of the party in question.
Take, for example, the income and expenditure tables of the Labour Party and the Social Democrats.
The Labour Party’s alternative budget makes it comparatively easy to spot the borrowing element of its budget – mainly due to the fact that it has a dedicated line item on borrowing.
Unlike the Sinn Féin budget table above, the Labour Party’s budget package is net of pre-committed spending.
We know this because it has as the government’s budget package the figure of €1.5bn – which is the net fiscal space.
Were Labour to factor in pre-committed spending as Sinn Féin has done, the Labour Party budget package would come to €8.9bn – €5.7bn in new spend (funded through net fiscal space, new tax revenue, and new borrowing) and €3.2bn in pre-committed expenditure.
We can see a similar approach with the Social Democrat’s alternative budget.
The Social Democrats plan to borrow €6.696bn. Again, very easy to see. (Although I think they may have over-estimated as the “carry-over” I’m taking to be net fiscal space and that should be €1.5bn which would give them a net borrowing figure of €5.946bn – €5bn for their Green Fund and €946m to fund the shortfall in additional core expenditure. But I digress.)
Nowhere in the Sinn Féin budget is there a line item with a dedicated figure that is labelled “borrowing”.
There is one short paragraph, just after their budget table, which says the following:
Are we to assume that the €1.5bn in the middle of the table for total budget package is ‘sustainable borrowing’? If that is the case, why not say it as Labour and the Social Democrats have? Why does it have to be an episode of Columbo to work out whether Sinn Féin intends to borrow or not? Do we get a prize if we guess correctly?
This is me being extremely generous. On first, second, even third reading I doubt anyone would pick up on that €1.5bn as being borrowing – mainly because Sinn Féin is saying that its total budget package is €6.2bn and when you add the gross fiscal space (€4.7bn) to the net new tax revenue (€1.475bn) you come to €6.2bn or thereabouts.
If there is borrowing of €1.5bn in the table above – and I think I’d need Tarot Cards to work that out – then the total revenue in the Sinn Féin budget is:
Gross Fiscal Space – €4.7bn
Gross New Tax Revenue – €1.906bn
New Borrowing – €1.5bn
However, its total budget spend from line items comes to €6.097bn, and to that we need to add pre-committed spend of €3.2bn, giving a total spend of €9.297bn.
This means that there is a shortfall of between €1.191bn and €2.691bn in the Sinn Féin budget.
The €1.191bn I think they spent twice by thinking that the €1.1bn pre-committed capital spend was discretionary.
The €2.691bn gap is made up of the above plus the €1.5bn shortfall which they might have as new borrowing even though nowhere in their alternative budget is this stated.
In the Week at Work podcast, I said that if Sinn Féin had produced this budget as a government budget it would have had austerity-type elements to it.
I think, more than anything else, that is what drove Pearse Doherty to ring me and express to me in respectful but forthright terms his outright rejection of that analysis.
And I can understand why.
Sinn Féin has been an anti-austerity party from Day One, and was during all the time when the current leader of the Labour Party was part of a government slashing supports to working class communities across the state. Today we have the Labour Party championing investment, even though when they had their chance they buckled and fell in line with Fine Gael.
But the fact remains that with almost all of Sinn Fein’s alternative budget taken up with additional spend, the shortfall would be in the pre-committed expenditure that Sinn Féin has not accounted for in its line items. That means cuts to ongoing services and also to the national pay agreement.
In the above analysis I have made a couple of very generous assumptions regarding the borrowing intentions of Sinn Féin – even though the fact remains that there is no line item dedicated to borrowing. If this were a government document, I doubt Sinn Féin would be so forgiving.
If those assumptions are dropped – and remember it is the responsibility of the authors of an alternative budget to make its intentions clear, not its readers – then Sinn Fein has produced an alternative budget with a €2.7bn hole in it. At best, it is €1.1bn.