The Irish Fiscal Advisory Council (Ifac) has been an ongoing critic of budgetary policy and its latest report, looking at October’s package, is no exception. Boiled down, what it is saying is that Ireland’s reliance on excess corporate tax receipts continues to grow as the Government plans to spend more of this money than it saves.
This leaves the State finances increasingly exposed to any downturn, or to a rapid fall-off in corporate taxes. That this does not look likely to happen in the short term seems to have emboldened the Coalition to carry on spending. There is some moderation in the planned expenditure growth rate next year but, at around 8 per cent, it is still well ahead of forecast tax growth of 4.4 per cent.
Worryingly, spending targets have been exceeded in each recent year, with the overshoots particularly large in 2024 and 2025. The same will happen again next year, unless action is taken to ensure a different outcome.
Meanwhile, the Government has still to publish a medium-term plan for the public finances. And the Department of Public Expenditure, remarkably, will not provide the council with expected monthly spending totals this year, making it difficult for it to estimate the likely 2025 overrun.
RM Block
The previous government was given some cover by Covid-19 for its lack of longer-term budget forecasts. But this one has no such excuse. A plan has been under consideration, we are told, and will issue in due course. It remains to be seen what emerges – and when. The Government is correct to plan to spend more on infrastructure, but to afford this it needs to keep day-to-day spending under control. It also needs to outline the likely impact of an ageing population on its finances.
It is no exaggeration to say, as the Fiscal Council does, that the Coalition is currently “budgeting like there is no tomorrow.” A key problem with this approach is that it increases the exposure of the younger generation of employees, who are the ones who are likely to have to pay the bulk of the higher taxes in future years, or to face the pain of spending cuts if things go wrong.
