The Government’s budget watchdog will renew its warnings about the rate of public spending increases today when it will tell the Oireachtas budget oversight committee that future budgets will become more, not less, dependent on rising corporation tax revenues to continue planned spending increases.
The Irish Fiscal Advisory Council (Ifac), set up after the economic crash to provide independent advice on budgets and government spending, will tell the committee that the plans for public spending increases in the coming years are “above an appropriate level.”
It will say that the big increases in expenditure will leave the State in a “more vulnerable position”.
The council’s examination of the Government’s medium-term fiscal plan, published before Christmas, shows that planned spending increases will mean that Government expenditure in 2030 will be 50 per cent more than it was in 2024 and “more than double the level of spending in 2019”.
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According to the opening statement of Ifac chairman Seamus Coffey, which was circulated to members of the committee on Monday, the Government should run “bigger surpluses today and make larger contributions to its savings funds” in order to prepare for possible future challenges.
“There are predictable costs coming from an ageing population and climate change,” Mr Coffey will tell the committee.
“Given the economy is already performing well, it does not need support from fast increases in Government spending. This does not mean that the Government cannot commit more resources to resolving issues such as Ireland’s infrastructure. It means that the Government needs to make choices between increasing investment, increasing day-to-day spending and cutting taxes,” notes Mr Coffey’s statement.
“Taking the plan at face value, net spending is expected to grow at a faster rate than the economy. The Government plans to run smaller surpluses in the coming years. This leaves Ireland in a more vulnerable position,” Ifac will say.
“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 its 2025 level. In this scenario, the budget balance moves into deficit in 2028.”
It says that according to the Government’s projections, it will save just €1 of every €8 in corporation tax during the period 2026–2030. “Ongoing spending will increasingly rely on these receipts,” it says.
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It finds that 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), implying that spending growth will ease off in the run-in to the next election.
“The pace of spending growth set out in the plan is much faster than in any other EU member state,” it says. “The average net spending growth rate of all EU countries is 3.9 per cent over 2025-2028. The growth rate of spending in Ireland is planned to be almost double the average of other EU countries.”
Under EU rules, member states must submit a medium-term fiscal plan to the European Commission. The previous government submitted a medium-term plan in October 2024, before the general election. After the election, this Government availed of the option under EU rules to revise its plan. After several delays, the Coalition submitted a revised medium-term fiscal plan late last year.
The fiscal council has repeatedly been critical of this Government’s, and its predecessor’s, fiscal and budgetary policies. It has said that large spending increases may prove to be unsustainable and create an overreliance on corporation tax receipts, which may not continue.
