Budget ‘repeats past mistakes of pumping billions into the economy’ – watchdog

The Budget “repeats Ireland’s past mistakes of pumping billions into the economy” when it is at full employment, the Irish Fiscal Advisory Council (Ifac) has said.

The watchdog said the “very large” Budget package will add pressures and widen the underlying deficit.

It noted positives such as record employment and steady growth, but warned that the strengthening of the economy comes with pressures

These include worker shortages, difficulties delivering on infrastructure projects, and fast increases in prices such as rents and services.

“Ireland needs a more serious vision that delivers on the economy’s needs without repeating the boom-to-bust pattern of its past,” Ifac said.

The council calculates the Budget at 9.1 billion euro, with 6.9 billion euro in permanent measures.

It said the tax package is effectively neutral because the 1.4 billion euro in tax cuts cancel out what would be raised by people drifting into higher tax bands plus the continued impact of previous measures.

Spending measures amount to 6.9 billion euro, with the rest of the package relating to temporary cost-of-living moves.

Part of the increase in spending relates to overruns in 2024 – 3.7 billion euro over estimates from the last budget.

This adds 1.8 billion euro to the 400 million euro announced in April for the public sector pay deal and 1.5 billion euro for health spending in summer.

Capital spending makes up 800 million euro of the total overrun.

Ifac noted that only about half of the Government’s 2.1 billion euro of cost-of-living measures were targeted.

It said money for universal energy credits, VAT cuts on energy and child benefit could have provided more to those most in need at a lower cost.

It warned that the overall package could be even larger when three billion euro of investments in the Land Development Agency, Uisce Eireann and Eir Grid are accounted for.

“While these amounts should be considered additional spending, they do not seem to appear in the budgetary figures.”

Ifac said the Government had again breached its 5% spending rule.

“Our first read is that this means a net spending increase of 9.2% for 2024 and 5.8% for 2025. This is far higher than the Government’s own 5% limit.

“2025 growth rate could rise to 8.8% if the three billion euro additional capital spending increases noted above were included for that year.”

The council said cumulative breaches since 2022 are substantial, with the Government likely to be 12.5 billion euro above what the rule would have allowed by 2025.

It added: “Large budget packages in recent years have put money back in people’s pockets but they have taken it away by pushing up prices

“By breaching its rule, the Government is estimated to add 1,000 euro to the cost of a typical household’s yearly outgoings. This is probably an underestimate.”

Ifac said the current surplus is down to an extraordinary amount of corporation tax being collected and the economy performing well.

“If these were to reverse, a deficit of almost nine billion euro could emerge.”