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THE GOVERNMENT HAS been urged to show restraint and avoid a giveaway Budget this year in order to keep the economy and public finances on track in a new report published by Ireland’s fiscal watchdog.
The Irish Fiscal Advisory Council’s (IFAC) assessment of the government’s economic and fiscal projections for the year found that the economy is performing well and operating at full capacity, with unemployment rates at record low levels.
Falling energy prices is driving inflation down, but domestic inflation remains high, with IFAC stating that fiscal policy “should not add to demand”.
“This is not the time for loose budgetary policy,” IFAC’s Professor Michael McMahon said.
“Choices need to be made. Doing everything now – tax cuts, current spending increases, ramping up capital spending – could all overheat the economy and add to price pressures.”
Overruns in health spending are accelerating, with “significant” overruns already developing this year. IFAC – the independent body established to assess and evaluate the country’s fiscal policy – said this is “unsurprising” given overruns from last year were not incorporated into Budget 2024.
Currently, a health spending overrun of around €1.6 billion looks likely for this year, which would grow by 5% thereafter. “This is not a particularly healthy picture for the health forecasts,” IFAC said.
Looking at infrastructure, IFAC estimates that there are “difficult challenges” as capital spending is now lower than had been projected in the National Development Plan (NDP), and there have been delays in the delivery of NDP projects.
IFAC said that getting value for money when the labour market is tight and material costs remain elevated is “extremely difficult”, and fixing infrastructure deficits is a slow process that takes place “over many years”.
McMahon said it is “really important” that plans are in place to maximise value for money while also supporting the domestic economy at different points in the cycle.
“If the domestic economy is in a weaker position and there is lower demand for construction, this is an optimal time for the government to fill that gap and to try to implement as many of the NDP projects as possible,” he said.
“At moments where the domestic economy is extremely tight, projects that can have a lower resource use of domestic resources are to be prioritised.
“It’s a very difficult job. We acknowledge that.”
According to IFAC, the Government is set to breach the National Spending Rule both this year and next year.
The rule was agreed in 2021, and seeks to keep increases to “core spending” – spending from the Exchequer – at 5% or lower. However, the government has broken the rule in every budget since it was introduced.
Since 2021, the breaches add up to €8.5 billion (9.7%) by the end of the year.
IFAC and the Government differ when it comes to just how the big the overspend will be, with IFAC’s estimate being higher than the Government’s because the latter does not include likely spending overruns in its figure.
IFAC said the Government also uses “fiscal gimmickry”, which refers to accounting techniques that make its fiscal numbers either adhere to rules or “look more favourable than they actually are”.
“What this practice does is it means that you either have a better position in a technical but not an underlying sense, and what we really want to be transparently judging and assessing is the true underlying picture,” McMahon said.
IFAC said the National Spending Rule is the “first line of defence” and the best guide for fiscal policy.
It welcomed new EU fiscal rules, which will see the Government submit a five-year fiscal plan, but said the new rules will not be a good guide for Ireland’s budgetary policy as they are set in GDP terms.
The Government’s spending forecast does include €4.5 billion in spending mainly reflecting Covid-19 spending and humanitarian assistance, but it is presented as non-core spending.
Core spending reflects the more permanent measures that are included in the budget each year, while non-core spending describes more temporary, one-off measures.
In Budget 2024, this spending was assumed to drop to zero, which made the Government’s spending position look much healthier, IFAC said.
However, it argued that this spending is likely to be longer-lasting than a temporary measure and should be included in core spending.
“We still see problems with the continued use of reclassifying things or including it as non-core. This fiscal gimmickry is undesirable, it weakens transparency.”
IFAC was critical of the Government for only forecasting for the coming three years, saying that making more long-term forecasts would be “a much more prudent policy”.
It said the current, short-term forecasting means that “relatively imminent, major challenges” such as the cost of transition for climate change and the beginning growing cost of an ageing population are not captured.
The Government forecasts an underlying general government deficit of 0.9% of GNI* in 2024.
Modified gross national income (GNI) is a metric which attempts to give a better view of the Irish domestic economy by removing some multinational activity, such as windfall corporation tax receipts, as compared with the standard metric of gross domestic product (GDP) which is the value of goods and services produced in a country.
The balance would remain in deficit out to 2026, which would mean 19 consecutive years of deficits.
IFAC highlighted how Government revenue is highly concentrated and could reverse suddenly.
Ireland’s corporate tax payments are concentrated among a small number of large, foreign-owned multinationals, with IFAC estimating that just three firms accounted for 43% of corporate tax revenues in 2022.
It also pointed out that income tax is highly concentrated, with an estimated 20% of highly paid employees paying around 80% of the total income tax.
It said a downturn in a small number of sectors would impact income tax, as well as corporation tax, which would be “a major fiscal challenge for Ireland”.
Concluding, IFAC said that the current budgetary policy is “not appropriate for the economy or the public finances”.
“Carefully planned and targeted increases in capital spending can be facilitated and support for particular parts of the economy or particular sets of household can also be accommodated,” it said.
“But this can be done without overheating the economy by either increasing taxes or containing other current spending and targeting the spending in the most effective way.”
It welcomed the setting up of the Future Ireland Fund, but said it believes the Government could be more ambitious in saving into the fund, which would lead to a larger fund to offset the
This would mean a larger fund would be available to offset the “inevitable” costs of an ageing population and climate change down the line.
IFAC called for the National Spending Rule to be strengthened by placing it in legislation. This would make it more likely to be adhered to.
It also called for the Government to forecast a minimum of five years ahead, and to provide transparent costings for climate action and Sláintecare.
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We’re at full employment, time to start cutting the dole by 25% for every year the work shy stay on it, plus abolish the Christmas bonus for those on welfare, expect for pensioners, carers and disabled.
@Pat Hazzard: It’s never going to happen. Get over your yourself .its a political thing. Wake up and smell the coffee.
@Pat Hazzard: nutjob
@Pat Hazzard: Taxpayers are paying for 400-500 new (fake) asylum seekers per week coming in to this country and you’re harping on about dole spongers. None of the above should be getting a penny of our hard earned money. Give us some real politicians who can sort out this embarrassment. Sort it out NOW!
@YKwkSIqW: I have no issues helping people genuinely fleeing war and conflict. It’s obvious they do need initial assistance and I am more than happy for my taxes to fund this.
I do have have a massive issue; however, with my taxes being used to fund the dole payments for healthy and able people who simply choose not not to work or worse have never worked.
@Luke Windak: The fact is that neither our own dole scammers nor the fake foreign immigrant scammers should be getting any of our taxpayers’ money.
The overpopulation numbers of the countries at war simply couldn’t be absorbed in Europe. Talk to people living in Sweeden, Belgium, and many other European countries that have been destroyed by uncontrolled immigration.
@Thomas Sheridan: ‘Sweden and Belgium are destroyed’ ,really?
@Luke Windak: why is that a problem? There will always be a small percentage of people that don’t want to work and they should be supported. This is not a dystopian slave state where we force people to work.
@Peter Fitzgerald: The people that don’t want to work should be supported? Transported more like, to the nearest building site.
@Pat Hazzard: Unemployment is a requirement of “our” economic system.
Those that manage the economy plan to always have a certain level of unemployment. Otherwise the bargaining power would shift to the worker.
Yet you blame the unemployed.
And want to punish them.
@Peter Fitzgerald: Hi Peter, I don’t want to work any more so I’ll send all my bills to you to pay for me. No one should get dole if they haven’t paid into the system, especially when there are vacancies throughout the country.
Someone please pass the memo onto Mr Roderic O’Gorman, he’s wasted ten’s of millions of Taxpayers money on one project alone,it wasn’t too long ago our kid’s were sitting in leaky prefabs because there was no money apparently to fix them or buy new ones, but O’Gorman seems to have been able to find Millions of euro to house all his new arrivals or IPAs as he calls them.
What exactly is his agenda?
Will the government listen? Nah, not a chance. It’s election time freebies for everyone, even those living in D4.
But they’ll try and buy the votes anyway…. they ignored the fiscal advice last year too.
I am still paying USC while the banks make billions in profit. I will not vote for these liars.
@Sean Money: apparently, it’s for our 280 billion debt, but I’m not sure. In 2008, it was needed to bail the banks out. Now, it’s needed to pay the debt. Yet those responsible are drawing pensions of 300k of taxpayers’ money. Only in Ireland and the banks making billions profit.
@did you every wonder: Govt spending has increased by 30+% compared to 2019. They’re also taking in around 25-30% more income tax and Vat since then…… We on the other hand have much less money in our pockets thanks to the cost of living crisis. Fiscal watchdog doesn’t care if we starve. They don’t even seem to care that the departmental budgets have exploded and they waste money left right and centre! Watch the tax “give away” and keep the regular Joe down is the game!… Problem is there won’t be any more to take when the next crisis hits and the govt want to hike taxes again
@another one? what’s going on is the semi state sec: But what was inflation during that time anyway?
(The real rate, which seems to be higher than the official rate.)
If inflation during that time was also 30%, then the state isn’t increasing spending anyway.
@ItWasLikeThatWhenIGotHere: W.O.W….. by that logic we should all have 20% pay increases and tax should be adjusted to match. Which it hasn’t, which is the point. They’re spending is OTT, we are suffering…… Real rate from Jan 2020 to now is 19.57% according to CSO.
@did you every wonder: The USC and other new taxes (e.g. property tax) were not needed to bail out the banks, the money used for the banks was borrowed. The new taxes were to pay for the day to day spending in the country e.g. pensions, public services etc as our tax take was decimated due to it’s overreliance on property taxes and it’s only in the last couple of years that the country has run a surplus, we had been borrowing every year before that, again paying for public services.
@ItWasLikeThatWhenIGotHere: I’ll dumb it down for you. Pay increases are nowhere near 20% for the period, not even in the public sector, but spending is 30+% more. Any pay increases over 42k the govt gets more than half back in tax. Say you get a 10% raise. The increase to net pay is a much smaller percent than 10% but you pay a much bigger percentage of it in tax. Tax credits need to be increased, bands need to be increased, thresholds need to be increased inline with inflation. They’re choking the life out of the majority of the population to increase their departmental budgets……. So you have an idea of the 2016/2019/2023 exchequer returns figures: Income tax €21B, €25.6B, €36.3B. VAT: €18.6B, €20.9B, €28.4B CT: €8.2B, €12.3B, €26.5B. Fiscal Counsel and ERSI scaremongering!!!
@another one? what’s going on is the semi state sec: My point is that if government spending has increased by 30% but inflation has also increased by 30% then government spending is really at a standstill.
Irrespective of anything else.
@ItWasLikeThatWhenIGotHere: yeah except inflation isn’t at 30%, it’s 20%. It’s an irrelevant point when the topic is a giveaway budget when we are being taxed as if it’s still austerity times!….. In your terms, Govt budget has increased by 10+% relative to 2019 adjusted for inflation, value of my paycheck has decreased by 17%. I got a 5% raise. Worth funk all after tax. See the point!?!?!
Its ok to give BAM another contract to build something that no one asked for, just dont help out the vunerable in society.
@bruce banner: We badly need a state infrastructure company.
@ItWasLikeThatWhenIGotHere: That’s the last thing we need if we want to control the costs. We do however need a state department/company that can draw up a detailed tender so costs can be controlled and not allow contractors to move the goalposts after the contract is signed.
As for the new bridge, surely that money could have been better spend on coastal protection schemes in this country (where the coastline is being washed away with each storm and, as we’re being told, these storms will become more frequent and stronger) rather than a vanity project between 2 somewhat rural areas.
Inflation is up over 20% since 2020. Tax bands need to be widened to reflect this. Total tax reform needed. Income tax take has increased massively since 2019, as has VAT. We’re getting bled dry. Govt budgets have increased by 30% with all this extra cash coming in people have much less disposable income. Maybe the fiscal watchdog should call out the govt wasting of money and departmental budget management and realise how Funked most peoples household budgets are with the taxation on-top of the cost of living crisis
When election nears, governments ignore economical advice to buy elections. Sadly, voters tend to be as short sighted as governments are.
Let’s face it though. You are more likely going to vote for parties offering you money etc then a party saying they intend giving you very little or even advising tax increases for services.
@AnthonyK: spot on
It’s lies
NEVER is always the answer from these people…Tell me their thoughts on the RTE Scandal!!!
Regular detached house in Navan for 600k for example.
Yes, give us more money but it still won’t be enough, even for navan
Mmm. Rings a bell.
Crash on the way
I think the watchdog outfit needs to get a pit bull.
@Oh Mammy: an ill-timed comment considering the tragedy last night!
@Clare Power: True that. However, had he said “a Mali” most people wouldn’t understand.
@ Hector turtlehead: There is no ‘regular detached house’ in Navan for 600k. There are however a number of 4 and 5 bedroom detached properties that could be considered ‘regular’ priced between 380k and 450k. Still a significant wedge but a long way from the 600k you used to try and make your point. These things can be verified so presenting false facts is not very clever. As for 600k homes, there are people who can afford them and I don’t begrudge them that. Why focus on a property one can’t afford rather than those on the market that are significantly cheaper in the same area?
Just leave it as is. Social welfare recipients are almost better off than those working on minimum wage already. Tax bands are just fine, no need to fix anything just because elections on the horizon.
have your say