THE GOVERNMENT STRUCK an “appropriate balance” with Budget 23 but needs to start planning ahead for “sizeable budgetary challenges”.
That’s according to the Irish Fiscal Advisory Council’s latest report which analyses the recent budget.
The IFAC is an independent statutory body that has a mandate to assess and endorse the Government’s official economic forecasts.
It has warned that these “sizeable budgetary challenges” are not being “recognised sufficiently” in Government planning.
The report notes the climate transition as one of these “significant budgetary costs”, with the Government aiming to cut carbon emissions 51% by 2030, while the pension age and a perceived reliance on corporation tax are also highlighted.
However, the Fiscal Council says “detail is lacking on how these targets will be achieved” and notes that while the “fiscal implications could be very large, they have not been spelt out”.
The Fiscal Council adds that the decision to maintain the pension age at 66 “will lead to materially higher taxes unless spending is cut elsewhere”.
It also warns that “public finances are relying on unpredictable excess corporation tax receipts from the multinational sector”.
Official forecasts currently only cover a three year horizon and the budgetary watchdog advises that the Government “needs to start planning ahead”.
Sebastian Barnes, Chairperson of the Fiscal Council said: “Ireland’s big longer-term challenges, from ageing to climate, to the over-reliance on corporation tax are becoming ever more urgent.
“To help tackle these areas, the Government needs to start planning ahead by forecasting at least five years ahead, making credible plans to address ageing and climate change.”
However, the Fiscal Council adds that the budget “struck an appropriate balance between protecting vulnerable households and avoiding inflation” amid slowing economic growth and a surge in food and energy costs.
The report cited measures that “focused on social welfare and pay, together with a large package of temporary supports to help address the rise in the cost of living, avoiding adding excessively to inflation”.
Meanwhile, the Fiscal Council welcomed the restoration of the National Reserve Fund.
€2 billion was allocated to the National Reserve Fund this year, with a second allocation of €4 billion to come next year.
The Department of Finance said: “The purpose is to ensure that windfall corporate tax receipts are not used to finance permanent increases in public expenditure.”
The Fiscal Council said the move will “limit exposure to unpredictable corporate tax receipts” but added that the National Reserve Fund should be “better designed and re-focused on saving for future pensions costs”.
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