Ministers across several departments have clashed with the Department of Public Expenditure and Reform (DPER) in recent meetings as fraught negotiations continue within Government over the tightest budget for years.
With less than a week before it is announced, no senior Minister had last night agreed their financial allocation for next year as the department holds firm on spending demands, according to several people involved in the process.
While there is an expectation that settlements will be agreed in the coming days, sources said this approach meant some big-spending departments were still locked in disagreement with DPER – including the departments of Health, Children, Housing and Social Protection.
The dispute with the Department of Education is said to be especially sharp, centring on the hiring of 3,000 to 4,000 extra teaching and other staff, with DPER insisting there is no sanction for the new hires.
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Officials of Minister for Education Helen McEntee are strongly resisting the claims by DPER, amid suggestions the planned reduction in the pupil-teacher ratio could be slowed.
Disputes with other departments centre on budget overruns this year and whether they should be included in the spending base for next year – or whether they should be paid for out of spending increases.
Minister for Public Expenditure Jack Chambers is insisting that money given over in cost-of-living measures or top-ups to high-spending departments in recent years be considered as “new” spending if repeated in 2026.
This approach risks limiting the room available for new policy interventions, critics say. However, Mr Chambers and Minister for Finance Paschal Donohoe are determined to slow recent growth in current expenditure, as well as ending the “once-off” payments of recent years.
In August, Mr Chambers wrote to senior Ministers warning it was “crucial” that “value for money” be protected in preparations for next week’s budget. In a letter released under the Freedom of Information Act, he wrote: “I urge you to focus on the totality of your existing allocation with a view to delivering policies and services as effectively and efficiently as possible.”
Some in Government are chafing against the demands, fearing they could herald a political blowback for the Coalition. Against that, some Ministers are said to have sought “unrealistic” growth in expenditure, including, in some instances, double-digit growth in spending.
While the Coalition is expected to proceed with a cut in VAT for parts of the hospitality industry from July 2026, senior Coalition figures acknowledged the risk of such a costly tax cut, which would, they said, limit income tax reductions for workers.
A cut in VAT for the sale of new apartments is also being seriously considered, as is a redesign of R&D (research and development) tax incentives to favour smaller, indigenous companies. Leaders and budget Ministers will meet on Friday, with talks likely to extend through the weekend as budget day nears.
Other spending pressures on the public pay bill will result from the EU presidency next year and from a pending “53-week year” – which occurs when the public sector pay-day falls on December 31st, resulting in 53, rather than 52, pay-days in the year.
The Government has been urged by the Economic and Social Research Institute, the Central Bank and the Irish Fiscal Advisory Council to further moderate spending growth.
