The Government would have to spend more than €3 billion next year just to maintain existing levels of day-to-day service before any new policy measures are announced in Tuesday’s budget, the Parliamentary Budget Office (PBO) has said.
Shifting demographics, the cost of the 2024 public sector pay deal and rising prices within the economy will contribute to a jump in standstill costs in 2026, the office said in a response to a request from Labour Party TD Ged Nash.
In the Summer Economic Statement (SES), the Coalition outlined a package of €7.9 billion for additional spending, comprising €5.9 billion for current spending and €2 billion in capital spending.
However, just €2.77 billion could be available to Minister for Finance Paschal Donohoe and Minister for Public Expenditure Jack Chambers for new policy measures, the PBO estimated.
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Demographic changes are potentially the most costly factor, adding an estimated €1.5 billion to the State’s day-to-day operating costs next year, according to the response.
The PBO’s estimates assume a “high migration” scenario, one of three potential outcomes modelled by the Central Statistics Office in its 2024 population and labour force projections. In this scenario, the population of the Republic is forecast to grow rapidly to more than 7 million people by 2057 from 5.14 million in 2022, largely due to high inward migration.
Combined with a greying population, these factors could increase the cost of delivering existing levels of service next year across areas like health, higher education, and public sector pensions, the PBO said.
Primary and secondary school running costs could decline slightly, however, due to a projected fall in the number of school-aged children in 2026.
All public servants will also receive a 1 per cent pay increase on February 1st, 2026, as agreed in the 2024 public sector pay deal, which could add an estimated €806.4 million to the State’s day-to-day operating costs in a “no policy change” scenario, the PBO said
“Considering the date at which these increases happen through the year, this results in a modelled increase of 1.5 per cent to the public sector pay bill in 2026,” according to the response to Mr Nash’s request.
Meanwhile, rising price levels could add €791.8 million to the State’s standstill costs next year, assuming inflation of 2.1 per cent in 2026, in line with Department of Finance forecasts.
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