The latest report from the Fiscal Advisory Council continues its strong criticism of Government budget policy, which it says has become too loose. With a general election in the offing, it is unlikely to be heeded - its warnings might at most lead to some moderation of the planned giveaways in the package on October 1st. However, given the amount of promises being made by the Coalition, and the kites being flown, even this is doubtful.
The fiscal council’s case rests on two central arguments. The first is that the economy is already at capacity and that more stimulus would add needless pressure to the economy. While overall inflation is easing due to falling energy prices, the council points to ongoing price pressures in the domestic economy in areas such as rent, food services and medical costs. In turn this hits living standards by reducing the purchasing power of wages. On Central Bank calculations the bills facing an average household each year could be ¤1,000 higher because of this inflationary boost.
Its second key point is a familiar one – the risks posed by the concentration on a few big companies for a significant part of the corporate tax take. This means, the council warns, that " the Government risks having to reverse its promises later on,” for example if there was a sudden hit to corporation tax revenues, or a reversal in the jobs market. This could mean painful tax increases, or spending cuts just as the economy is slowing,
The continuing upward march of corporation tax – confirmed again in the latest exchequer returns – both ups the ante in terms of this warning and also makes the argument more difficult for the council to make. Along with the Department of Finance, the council estimates that subtracting what it defines as the “windfall” element of corporate tax receipts, the exchequers finances are in deficit. But the money keeps flooding in. And the issue, politically, is the pressure to spend more of this money to boost living standards and address key issues in areas like housing.
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As ever, this comes down to balance. The State needs to boost investment – and in turn this will help to underpin growth and lower pressure on areas of the economy. That said, getting value for money and actually getting projects done is challenging. And the council has a point when it highlights that as well as this investment, the Government is also pushing day-to-day spending sharply higher, thus breaking its own expenditure rule , planning to cut taxes and promising another round of “once-off” supports for households .
This “everything at once” approach adds to the risks facing the public finances, the council argues. Budget 2025 should focus on investment and supporting those who need it. Instead, a blatantly pre-election package is in the offing. The latest buoyant exchequer returns will only increase the political demands.