*The Government cannot continue spending at the current rate without raising taxes or cutting back on its current expenditure, the Central Bank of Ireland has warned.
The regulator said the rapid growth in spending in recent years was not sustainable without additional tax-raising measures and that the Government needed to commit to more rigorous spending controls, including a credible fiscal rule.
In its latest quarterly bulletin, it took aim at the Government’s proposed €9.4 billion budgetary package for next year, claiming it involved “too much spending” at this point in the economic cycle.
While it stopped short of saying the package was inappropriate, the bank said the additional spending would provide “an unnecessary stimulus” to an economy already growing at a healthy rate.
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The bank upgraded its growth forecast for this year to 2.9 per cent amid the front-loading of exports into the US by multinationals earlier this year.
However, it said growth would be weaker in 2026 and 2027 – averaging 2.3 per cent – on the back of more fragmented trade patterns and higher levels of uncertainty.
“Reducing the risks to the public finances from an excessively narrow tax base has become more critical, given the reliance on corporation tax receipts from a small number of MNEs [multinational enterprises], which may be more vulnerable in light of geoeconomic fragmentation,” the bank said.
Overruns in day-to-day spending are expected to top €2.5 billion this year as a result of greater-than-expected spending across several departments.
“The underlying budget deficit [excluding estimated excess corporation tax] is now projected to be larger out to 2027 when compared with the previous bulletin, reflecting additional expenditure measures announced by Government,” the Central Bank’s director of economics and statistics Robert Kelly said.
He warned that the Government’s current spending trajectory was not sustainable without additional tax-raising measures or a paring back of current spending.
“Broadening the tax base is necessary to create the fiscal and economic capacity to increase public capital investment as envisaged in the National Development Plan,” he said.
His comments come alongside a separate warning from the Irish Fiscal Advisory Council (Ifac) about the proposed level of Government spending in the budget.
“This is faster than the sustainable growth rate of the economy,” Ifac chairman Seamus Coffey will tell the Oireachtas Committee on Budgetary Oversight on Thursday.
“Given the strong position of the economy at present, the council would recommend a more modest budget package than what is currently planned,” he says in an opening statement to the committee, seen by The Irish Times.
In a signed article published alongside its latest quarterly assessment of the economy, the Central Bank predicted US tariffs would knock 1 per cent off national income in the long term but was unlikely to result in a sudden shift in foreign direct investment.
“The analysis suggests that tariffs of the magnitude now being introduced are unlikely to lead to any significant reduction in existing foreign investment, but the potential loss of Ireland’s attractiveness as an export platform for new US foreign direct investment remains a key risk over the medium term,” it said.
*This article was edited on Thursday, September18th, 2025 to clarify that the option was to cut current spending, not capital spending.
