The best use of public money in the forthcoming budget would be through targeted measures, the Irish Fiscal Advisory Council (IFAC) has said.
IFAC’s leaders appeared before the Oireachtas Committee on Budgetary Oversight on Wednesday evening three weeks ahead of the unveiling of Budget 2024.
Michael McMahon, acting chair of the IFAC, said the Government should consider exactly who needs to be helped rather than blanket universal measures.
“One question that should be asked is how well targeted these policies. The best use of public funds is in a targeted manner. That is a big discussion that should reign over Government policy. Who are we trying to help?”
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In the last budget, the Government announced a number of targeted social welfare measures including an increase to the qualified child payment and increases to both the threshold for eligibility for the working family payment and the means limit applied to eligibility for fuel allowance.
Fine Gael TD Bernard Durkan highlighted the anxiety being felt by homeowners with rising mortgage interest rates. Mr McMahon said the council does not know how long high inflation rates will last.
Labour TD Ged Nash asked IFAC if they agreed that the Government’s fiscal plans could contribute further to inflation.
“Yes, we would agree that as set out in the Summer Economic Statement and given where the economy is now, we would assess that the stance is expansionary,” Mr McMahon said.
People Before Profit TD Richard Boyd Barrett said it did not sit well with many people that arguments are being put forward to the effect that not increasing budgetary spending was in some way protecting them from a deeper cost-of-living crisis.
Mr McMahon said that inflation “hurts everyone”.
Earlier, the council said that the Government plans to repeatedly breach its own spending rules every year out to 2026. That plan threatened to “destabilise” the economy, Mr McMahon said.
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.
The Irish Times had previously reported the council would voice criticism of the Government’s plans in its opening to statement to the committee.
“The breaches are serious. First, they continue procyclical fiscal policies Ireland has struggled with in the past,” Mr McMahon said in his statement.
“That is, increasing spending and cutting taxes when the economy is already performing strongly. Such an approach can destabilise the economy in an upturn, fuelling more price increases. And it often means having to reverse those measures in bad times as revenues dry up. This approach has added to unemployment increases in downturns, exacerbating recessions.
“In the near term, spending overruns, especially in health, will add to the overall expansion,” he said.
IFAC’s has repeatedly warned against an overly expansionist budget, as have the Central Bank and think-tank the Economic and Social Research Institute.
