New faces but same pre-Budget tensions between Ifac and Department of Finance
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As the saying goes, the more things change the more they stay the same and this is certainly true for the fractious relationship between the Department of Finance and budgetary watchdog the Irish Fiscal Advisory Council (Ifac).
Earlier this summer, 33-year-old Jack Chambers was made Finance Minister after Michael McGrath’s surprise departure for a job in Europe. One of Mr Chambers’ first appointments was naming economist Seamus Coffey as chairman of Ifac.
When speaking ahead of Ifac’s pre-budget statement, Mr Coffey frankly outlined his organisation’s concerns in the final weeks before budget day but was cautious not to use words that were previously used by Ifac, including “fiscal gimmickry”.
His point was clear: Continuing the trend of pumping money into the economy while it’s already performing strongly may end up being costlier for households in the long run and could lead to overheating.
Even with Mr Coffey’s direct approach, his sentiments are extremely similar to Ifac warnings in the past. Meanwhile, Mr Chambers is set to follow his predecessors and breach the Government’s self-imposed 5% spending rule once again. Especially with a general election on the horizon.
Therefore, even though both these organisations have fresh faces, it seems they will continue to be at loggerheads.
Regardless of the tension between the two areas, households are looking to the Government now for support both in the long term and short term.
Many households are still suffering the effects of the cost-of-living crisis and may need a bit extra in their pockets to deal with rising prices. This is a catch-22 as some prices have climbed due to Government overspending and Ifac has warned the minister not to be too loose with public finance purse strings and drive prices even higher.
That said, Mr Coffey did say there is “merit” in providing support measures for some exposed households. However, Ifac also suggested that the government could increase taxes, which would allow them to increase spending but would not lead to an increase in savings. This recommendation is not likely to go down well with public who have lived through four years of economic turmoil.
While there needs to be a balance in what the Department of Finance does and does not take on board, the Government’s persistent habit of ignoring Ifac advice has year after year put the role of the watchdog under the spotlight.
That said, the presence of the body has time and time again pointed to risks in the economy we may otherwise be blind to as the country continues to experience high employment and real wage growth.
Ifac once again highlighted the volatility of corporation tax receipts which are often used for significant padding in government budgets but also said that just three firms account for the majority of this revenue, leaving Irish public finances extremely vulnerable if they ever decide to exit.
Volatility in the multinational sector is cause for concern in this regard especially as the pharma industry recorded a slowdown post-pandemic and the e-commerce slump amid an AI boom has led to a mass wave of layoffs in the tech sector in recent years.
The watchdog also argued that, even with the Government running a surplus in the 2000s right up until the crisis, “it didn’t make things safe then. It doesn’t now.”
“The exposure to windfalls and narrowing of tax base has some parallels,” it cautioned.
The importance of the watchdog can’t be understated, especially given Ireland’s financial history.