The government has warned it may breach EU spending rules by 0.4% of GDP in 2016, and come close to the 0.5% overspend that would trigger increased budget oversight by Brussels.
A report prepared by officials in the taoiseach’s department suggests corrective action will not be needed, however, and reminds the European Commission not to stray into areas where national governments set their own policies.
The spending alert is contained in Ireland’s National Reform Programme (NRP), an annual report from government to the European Commission on fiscal and social policy plans for the year ahead. The NRP also updates Brussels on the policy progress Ireland has made on a list of “country specific recommendations” made by the commission each year.
Brussels has urged the government to increase the cost-effectiveness of the healthcare system, cut spending on branded medicines and introduce activity-based funding (“money follows the patient”) in hospitals.
Enda Kenny’s officials reported €400m in savings on generic drugs since reaching a new agreement with the pharmaceutical industry in 2012, and said generics now account for 73% of drugs prescribed.
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However, the government also delivered a clear message to the commission that it could not dictate health policy in member states. “It must be underlined that health remains a national competence, including in the context of the European semester [budgetary process],” the NRP said, citing the EU treaty on the functioning of the union.
“The union shall respect the responsibilities of member states for the definition of health policy, and for the organisation and delivery of health services and medical care.”
The cabinet was briefed last week on the 2016 NRP before its dispatch to Brussels later this month. Ministers heard the structural budget deficit would be cut by 0.8% this year, ahead of the EU target of 0.6%.
The report says Ireland “comfortably passes” the EU budget target but was “at some risk of deviation from the expenditure benchmark requirement”. This is an EU-imposed ceiling on annual government spending. It prevents governments from increasing spending by more than a percentage linked to average growth over the previous 10 years.
“While Ireland shows a deviation of 0.4% of GDP (€864m) with the expenditure benchmark, this does not represent a significant deviation (which is defined as greater than 0.5%),” the NRP says.
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An overshoot higher than 0.5% could trigger a requirement from the EU for Ireland to draft a corrective plan to get its budgetary process back on track. The corrective plan would have to be delivered to the Dail within two months of breaching the spending ceiling, and implemented over the following two years.
Failure to make the required correction exposes a national government to a fine of up to 0.2% of GDP — more than €430m. The NRP says Ireland is having some success in tackling long-term unemployment and plans to move 20,000 people out of it in 2016, reaching an exit rate of 44%.