The Irish Fiscal Advisory Council (Ifac) has warned that the Government’s proposed budgetary package is “larger” than what it considers appropriate for the economy.
However, it said the bigger concern was that the final package could differ substantially from what is announced on budget day.
“Spending overruns have become routine and have repeatedly pushed spending above budget-day plans,” the council said in a pre-budget submission published on Tuesday.
Over the past decade, overruns have averaged more than €2 billion per year, it said, noting that the last time spending was at, or below, budgeted levels was in 2013.
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It warned that a large budget package would add to inflation and increase costs for households and businesses.
The Government’s proposed €8.5 billion budgetary package signalled in its recent Summer Economic Statement implied that net spending – which includes tax changes – would grow by 6 per cent next year, the council said.
[ Irish Fiscal Advisory Council warns of ‘sizeable’ budgetary overrunsOpens in new window ]
This was faster than the sustainable growth rate of the Irish economy and therefore “not appropriate”, it said.
“The Irish economy is in a strong position and does not need support from Budget 2027,” Ifac chairman Seamus Coffey said.
“The Government’s plans for Budget 2027 are slightly larger than what the council would deem appropriate,” he said.
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“But the bigger concern is that the actual budget package is likely to be much larger than what is announced on budget day,” Coffey said.
When budgets grow faster than the economy, they tend to cause inflation. Some of the Government’s recent budgets are estimated to have added 0.4 per cent to headline inflation, equating to about €250 in annual outgoings for the average household.
The council said the Government was facing significant spending pressures in 2027 before any new policy measures are introduced.
“A growing and ageing population means greater demand for healthcare, pensions and other services,” it said.
Inflation and other cost pressures, including a new public sector deal, could amount to €8 billion in 2027. “This would absorb much of the funding available for new measures next year,” it said.
The council also took aim at the Government’s medium-term spending plans, which aims to keep annual increases in spending within a 6 per cent threshold, claiming this was the only framework in place.
[ Buoyant tax receipts provide cover for runaway State spendingOpens in new window ]
It said this was not an appropriate anchor as it allowed guide net spending to grow faster than the economy’s sustainable growth rate.
“Following this plan would result in an even greater dependence on risky corporation tax receipts,” it said.
Coffey said Ireland needed its own domestic budgetary rule.
“A carefully designed rule, set out in legislation, would provide a better guide for budgetary policy and help ensure that spending grows at a sustainable pace over time,” he said.
In its submission, Ifac said the Government was spending €7 out of every €8 collected in corporation tax, which was too little.
Corporation tax receipts hit a record €33 billion last year and are expected to rise to €35 billion this year.
Without these windfall taxes, the Government’s projected €9 billion budget surplus this year would morph into deficit of more than €10 billion, equivalent to 3 per cent of national income.
The council advocates running larger surpluses and saving a greater share of corporation tax receipts.
Currently the Government is saving approximately €6 billion a year in the Future Ireland Fund and the Infrastructure, Climate and Nature Fund to future-proof the public finances.
