Donohoe defends spending increases saying previous budgets have not added to inflation 

The overall budget package of €8.3bn will contain €6.9bn in additional public spending and a tax package of €1.4bn. Overall public spending will increase by 6.9% which once again exceeds the Government’s own spending rule of not increasing expenditure by more than 5% annually. 

After covering cost increases to maintain the same level of service, €1.8bn is left over for new measures with €1.4bn more allocated for capital expenditure. This increases capital expenditure for next year by 10.6% to €14.5bn. 

Last week, Central Bank governor Gabriel Makhloulf urged the Government to keep expenditure growth to 5% in the budget warning that it could contribute to overheating of the economy and impact Ireland’s competitiveness.

However, Mr Donohoe said that during previous budget cycles they’ve been warned against spending more over concerns it would add to inflation.

“The fact that inflation is at the level that it is now within the Irish economy does show that the budget decisions that we have made have not contributed to inflation being any higher in Ireland,” he said.

Mr Chambers also pushed back on suggestions that this was a “giveaway budget” saying on the expenditure side it is similar to last year.

He said the basis for this increase is the need for more capital expenditure and ensuring that the existing level of service is maintained.

"We're trying to strike a balance here,” he said.

Acting chief economist for the Irish Fiscal Advisory Council (IFAC) Niall Conroy said this is not the time for a large budget package and their advice to the Government would have been to keep expenditure growth to 5%.

“Given that the economy is going really well, and doesn’t really need a stimulus, we think now is the time to put money aside and save it so the Government can act when there is a downturn in the future,” he said.

Economist Austin Hughes said he wasn’t too concerned about the spending levels but he would prefer to have seen more allocated to capital projects.

“I think the balance could have been more in favour of faster infrastructure spending… I would have switched the balance a little bit so the taxation package and the current spending increases would be a little bit smaller. ” 

Mr Hughes said he would have liked to see a 15% increase in capital spending next year. 

“In an economy with the infrastructure issues that we have, we should be growing our investment at a much faster pace,” he said. 

In relation to the tax package, Mr Conroy said their estimates suggest that only €1.1bn would be needed to index the tax system for next year to insulate the real wage increases people are experiencing. 

“If they are thinking about using €1.4bn for tax cuts on income tax, that is probably a little bit more than what you need to simply index the tax system,” he said.

Mr Chambers said that the tax package is there to ensure that people don’t find themselves paying a higher rate of tax as their wages continue to grow.

He added that the final structure of the tax package has not been decided.

"On the income tax package obviously, we'll be prioritising low and middle income earners so that it's progressive,” Mr Chambers said.

The tax package comes as workers start to experience real wage increases as inflation continues to recede.

During the first three months of the year, average weekly earnings increased by 4.7% while inflation averaged 2.25%. This meant that real wages grew by almost 2.5% between January and March.