Growth in Government spending is higher than appropriate levels, the Irish Fiscal Advisory Council has warned.
It said that given the economy was already performing well, it did “not need support from fast increases in Government spending”.
Speaking at the Oireachtas committee on budgetary oversight on Tuesday, council chairman Seamus Coffey said increasingly bumper receipts from corporation tax were being spent by the Government.
“We have gone from [a position] a number of years ago of spending in the region of 60 per cent of it; we are now heading to close to 90 per cent of those receipts being spent and baked into ongoing spending commitments.
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“We do think we are building up vulnerabilities by having more and more of our spending dependent on this corporation tax and then injecting it into an economy that is performing well,” Mr Coffey told Edward Timmins of Fine Gael.
[ Government spending last year was €4bn higher than planned, Ifac warnsOpens in new window ]
Karina Doorley, council member and an associate research professor, said if the Government wanted to inject a lot of money into the economy, it should take out money from elsewhere.
Cian O’Callaghan of the Social Democrats said a lot of expenditure went on wages in the public service. He asked how the State could close the current deficit in infrastructure while fitting in with a suggested 5 per cent spending growth limit that the council was proposing.
Prof Doorley said: “I think we would agree, obviously, there is an infrastructure deficit that has to be addressed, and that is going to take some spending. But if the Government identifies we need to increase spending in a particular area – let us say, infrastructure – then revenue has to be raised elsewhere.”
She said if revenue had to be generated elsewhere, there were options. She said the Commission on Taxation and Welfare had recommended broadening the tax base.
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“If we want to keep the net spending at a sustainable level but we definitely need to increase spending on infrastructure, then revenue needs to come from somewhere else.”
Mr Coffey said spending under a medium-term Government plan submitted to the European Union last October meant the pace of expenditure was set to rise faster in Ireland than in any other EU member state.
“Net spending is planned to grow at an average rate of 7.1 per cent over 2025–2030 (7.4 per cent over 2025–2028). Spending in 2030 is now forecast to be 50 per cent higher than it was in 2024 and more than double the level of spending in 2019.”
He said the average net growth in spending in all EU countries was 3.9 per cent.
He said this followed a pattern in that, since 2019, the growth in Government expenditure had been among the highest in high-income European countries.
Mr Coffey also said the Government planned to run smaller budget surpluses in the coming years and that this would leave Ireland “in a more vulnerable position”.
“Running surpluses is dependent on corporation tax receipts continuing to grow. The plan is based on corporation tax reaching €42 billion in 2030.
“The plan shows an alternative scenario where corporation tax remains at 2025 levels. In this scenario, the budget balance moves into deficit in 2028.
“The revised plan suggests €1 of every €8 in corporation tax will be saved, 2026- 2030. Ongoing spending will increasingly rely on those receipts.”
