The Government has committed to limiting the annual increase in public spending to 6 per cent a year for the next five budgets.
The pledge was contained in the Government’s Medium Term Fiscal and Structural Plan which Minister for Finance Simon Harris described as a “fundamental change” in Irish budgetary policy.
“We’re moving towards medium-term budgeting,” Mr Harris said.
The strategy envisages spending, capital and current, increasing from €110 billion this year to €147.3 billion by 2030.
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The annual increase in spending will taper from 7.2 per cent next year to 5.4 per cent in 2029 and 5.2 per cent in 2030, equating to average annual increase over the period of 6 per cent.
This would represent a significant reduction on increases seen in recent years.
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Between 2019 and 2024, spending increased by 54 per cent to €104 billion, equating to an average annual increase of 9.4 per cent, which the Irish Fiscal Advisory Council (Ifac) has described as “reckless”.
Spending for 2025 is already €4 billion beyond what was outlined in the budget last year.
The Medium Term Fiscal and Structural Plan is a requirement under the new European Union (EU) fiscal rules and the document will be submitted to the European Commission in the new year.
Minister for Public Expenditure Jack Chambers noted that the plan contained a €1 billion contingency which is not allocated.
If it is called upon, it will be deducted from spending the following year, Mr Chambers said.
The Department for Finance’s chief economist John McCarthy acknowledged that total Government spending, voted and non-voted, the metric that the European Commission monitors, would rise at a slightly higher average annual rate of 6.5 per cent during the period covered by the plan.
He also admitted that the penalty for breaching the new spending limit would be “reputational rather than legal”.
Attempts by the previous Government to adopt a 5 per cent annual spending cap were abandoned while much of the additional spending introduced during the high-spending Covid years has now been built into the Government’s expenditure base.
This has prompted criticism from Ifac and the Central Bank which have both warned about the Government’s increasing reliance on windfall corporation tax receipts
Minister Harris said the plan would prioritise the objectives of the National Development Plan to support investment in critical infrastructure such as electricity, water, transport and housing.
“We need to see this as an opportunity rather than a challenge,” he said.
“It gives greater certainty to Government departments and state agencies in terms of getting on with the job,” Mr Harris said.
“But it all gives greater certainty to the private sector which continues to be the sector that invests most ... it gives them a real insight in terms of our plan from a budgetary perspective for the next number of years,” he said.
The publication of the Government’s plan, however, prompted criticism from Labour’s finance spokesperson Ged Nash who said it should have been published before the Dáil rose “so it could be properly interrogated”.
“This is a thin enough document and it is beyond me how it took so long to produce,” he said.
“Labour is in favour of a form of a net spending rule (net of tax changes), but it is important that any rule is anchored in reality in terms of addressing the very real deficits this rich country endures in terms of health, education and other key public services and our below par infrastructure stock,” he said.
