In the context of sustained improvements in the public finances since the fiscal crisis of the earlier part of the decade, the scope and adequacy of public expenditure has reemerged as a major political and social concern in the Republic of Ireland. The most recent data show that public finances are moving to a state of compliance with European and domestic budgetary objectives, with the government deficit falling to €1.5 billion or 0.6% of GDP in 2016 and with concomitant declines in the public debt. These improvements notwithstanding, given currently signaled policy, additional resources available over and above current expenditure are very modest, and consistent with real declines in public service provision given demographic and inflationary pressures.
This paper goes on to compare the aggregate level of expenditure with euro area averages under Classification of Functions of Government (COFOG) categories, generally demonstrating under-expenditure in the Irish case relative to comparators. Aware of both the issues surrounding comparisons using GDP in the Irish context and the misleading picture given by aggregates in some cases, we move to compare per capita relative spending data with similarly affluent EU countries.
We find similar under-spends within many expenditure categories, some of which are likely attributable to demographic factors, such as the relative absence of elderly populations in Ireland in contrast to comparators. Other areas of relative under-expenditure, such as per pupil expenditure on education and per capita expenditure on gross fixed capital formation and public R&D are more concerning from a long run growth perspective.
We conclude that the limited fiscal resources should prioritise expanding the Republic’s productive capacity through investment in these areas along with measures such as enhanced childcare subsidies to improve employment outcomes, human capital development, equity and facilitate long run growth.