Ireland will effectively avoid any financial scrutiny under the EU’s incoming fiscal rules, posing a significant risk to the exchequer, the head of the Irish Fiscal Advisory Council (Ifac) will tell the Oireachtas committee on budgetary oversight on Wednesday.
“Like a motorway with unenforced speed limits, Ireland will for the most part be left to its own devices,” Seamus Coffey will tell the committee, according to a copy of his opening statement seen by The Irish Times.
Members of the budgetary watchdog are due before the committee to discuss the Government’s medium-term fiscal plans.
Mr Coffey will say that while the EU’s incoming fiscal rules will attempt to put a speed limit on government spending, “they focus heavily on GDP [gross domestic product], which makes debt and deficit ratios look overly benign for Ireland”.
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The EU’s debt and deficit rules were suspended during the pandemic but a revamped version, allowing governments greater leeway to invest while attempting to clamp down on fiscal recklessness, is now being proposed.
Using GDP, however, flatters Ireland’s true financial position, giving the State a debt-to-GDP ratio closer to 40 per cent versus the proposed 60 per cent limit when more accurate measures of national income put Ireland’s ratio at 70 per cent.
Mr Coffey will also warn that the new rules do not account for Ireland’s increasing reliance on corporation tax.
“This dependency on a small number of multinational companies is risky,” he says, noting Ifac estimates that just three multinationals made up 43 per cent of corporation tax receipts in 2022.
“With Ireland facing little external scrutiny under the new rules, the onus falls on the Irish Government to manage its finances responsibly. With each passing budget, Irish governments may well decide to revise up the speed limit they stick to on net spending,” Mr Coffey will tell the committee.
The solution, he says, is for the next government to stick to a domestic or national rule similar to the 5 per cent spending rule introduced in 2021 but which has been breached every year since.
“Future governments can show they are serious about managing the public finances sustainably by reinforcing such an approach,” he will say, either by bringing the rule into legislation or, at the very least, it could entail seeking cross-party agreement on how the rule should work.
On why the State needs such rules, Mr Coffey will say: “History, including Ireland’s own, teaches us that there are significant economic, social and political costs to running unsustainable fiscal policies.”
“After the profligacy of the 2000s, Ireland’s austerity lasted seven years, it added to the pain of rising job losses, and it changed the political landscape dramatically,” he will add.
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