Fiscal council criticises Government's 'everything now' budget plans
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The Irish Fiscal Advisory Council (Ifac) has criticised the Government’s “everything now” summer economic statement for being “significantly more expansionary” than the stability programme update from April.
On Tuesday, the Government announced the forthcoming budget would have an overall package of €8.3bn, with €6.9bn going towards more public spending while €1.4bn will be allocated to a tax package.
As a result, public spending will increase by 6.9% next year, which once again exceeds the Government’s own spending rule of not increasing expenditure by more than 5% annually.
In a series of social media posts, Ifac said this expansionary budget comes at a time when the economy is “performing well”, with unemployment at record lows.
“The economy does not need more money pumped into it from Budget 2025,” it said.
Ifac noted the tax package announced would be about €300m above the cost of indexing the tax system.
“The national spending rule takes account of spending increases net of tax changes. It limits the overall net increase to 5%,” it said.
“If a government wants to increase spending by more than 5%, this can be done. But it requires tax increases to pay for the extra spending.”
The council went on to suggest the Government “appears to be avoiding making choices in Budget 2025” and instead an “everything now” approach was being taken in relation to spending increases, tax cuts, and investment.
“Breaking the national spending rule now increases the risk of the economy overheating and adds to inflation pressure. Recent work by the Central Bank suggests that by breaking the spending rule in the last two years, prices are 1% higher than they would have been otherwise,” the council said.
On Tuesday, Public Expenditure Minister Paschal Donohoe defended the Government’s approach in the summer economic statement, as well as previous budgets that breached the spending rule, saying additional spending had not added to inflation.
He pointed to the fact inflation has now dropped to about 2% annually, which is the target set by the European Central Bank.
Last week, Central Bank Governor Gabriel Makhloulf urged the Government to keep expenditure growth to 5% in the budget, warning it could contribute to overheating of the economy and impact Ireland’s competitiveness.