The Irish Fiscal Advisory Council’s (Ifac) main criticism of the Government’s spending plans is not that they represent a temporary breach of the 5 per cent spending rule at a time of crisis — inflation, housing or otherwise — but that they seem to disregard the rule entirely.
Yesterday, the budgetary watchdog warned the Coalition’s financial plans, outlined in its recent Summer Economic Statement (SES), had the potential to “destabilise the economy” and fuel further price increases.
They would see the national spending rule “repeatedly breached” every year out to 2026, Ifac said, noting net spending would be €4 billion higher by 2026 as a result.
‘These housing demand forecasts are not worth the paper they’re written on’
In 2021 the Government said it would not increase spending by more than 5 per cent each year. However, it has moved to drop that rule amid the cost of living and housing crises.
Budget 2025 main points: Energy credits, bonus welfare payments, higher minimum wage and tax changes
Budget 2025 calculator: How this year’s budget will affect your income
Households worse off over failure to peg tax and welfare changes to income growth - ESRI
If our finances go flat, how will Ireland pay its bills?
Because our GDP (gross domestic product) yardstick is so out of kilter with the domestic economy, the incoming EU fiscal rules, which aim to keep governments on the straight and narrow financially, provide no sort of framework here. In other words, we will always be adherent even when spending too much because our GDP is so big.
The 5 per cent spending rule is, therefore, the only real anchor and now the Government seems to be jettisoning it. Of course, the Government is under a different set of pressures.
Multinational sector
Telling voters you’re keeping the purse strings tied when you have an acute housing crisis and a welter of tax receipts from the multinational sector would be politically risky, even suicidal some might argue. It’s a difficult circle to square.
But it is easier than having too little money and the same pressing infrastructural problems. And that’s what Ifac and others fear will happen down the line, particularly if the corporate tax golden goose stops laying. We had the first possible inkling of this in the latest exchequer returns for August, which showed corporate tax receipts were down €1 billion on the same month last year. Was this a blip or the beginning of a more profound shift?
