Overruns in day-to-day public spending are likely to top €2 billion this year, according to projections by the Government’s budgetary watchdog.
The Irish Fiscal Advisory Council (Ifac) is expected to issue several warnings to the Government on Tuesday when it appears before an Oireachtas committee for discussions about the October budget.
The finding about overspending is among several criticisms and warnings that Ifac is likely to make today. The Coalition is preparing its summer economic statement, a key budgetary document that will indicate the parameters for spending increases in the October budget.
The council will urge the Government not to continue with the pro-cyclical budgetary policies of recent years, in which billions of euros were allocated on budget day, as well as longer-term spending increases.
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The Government has said that there will be no one-off cost-of-living packages this year, though Ministers are likely to come under fierce political pressure – including from their backbenchers – on this issue as budget day approaches.
“Given the economy is in a strong position, it does not require support from budgetary policy. Standard economics suggests the government should support the economy when it is weak, but show restraint when the economy is strong,” council chairman and UCC professor Séamus Coffey is expected to tell the budgetary oversight committee.
“Recent budgets have pumped money into an economy that is already performing well. After accounting for exceptional corporation tax and a strong economy, the Government is running a substantial deficit. This is equivalent to more than €2,500 per worker.
“Looking to Budget 2026, if the economy continues to perform well, spending growth [net of tax changes] should be no faster than the sustainable growth rate of the economy,” Mr Coffey is expected to say, according to an opening statement submitted to the committee.
“If the Government wants to spend more in a certain area, or tax less in another, it needs to offset that by doing less in other areas.”
The council will urge the Government to take account of spending overruns when drawing up next year’s expenditure plans. The overruns are in current budgets and do not include overspending on capital projects.
The council will be critical of the lack of a medium-term budgetary strategy. “There is no effective framework for fiscal policy at present,” Mr Coffey will tell the committee. “The Government is yet to propose a clear plan for a domestic fiscal rule. This means there is no formal guide for budgetary policy.”
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It will also warn about the need to accelerate the carbon transition. “If Ireland fails to reduce its emissions, as it currently looks set to [do] by a wide margin, we may have to transfer an enormous amount of money to neighbouring countries,” notes the opening statement.
The council identifies three key challenges for the Government: an ageing population; managing the climate transition; and infrastructure, which it says is “about 25 per cent behind [Ireland’s] peers”.
Moreover, the fiscal council will make four recommendations to the Government: reduce the “ups and downs” of the economic cycle by “showing restraint when the economy is strong and being more generous when the economy is struggling”; set limits for spending growth; focus on competitiveness and infrastructure; and improve spending forecasts to eliminate large overruns.
Government departments are compiling requests for spending increases to be tabled during the budgetary process.
