THE STATE WILL have to borrow in order to fulfil its saving fund commitments, the Irish Fiscal Advisory Council (IFAC) has said, as Ireland is set to increase spending faster than any other European economy in the medium term while continuing to rely on risky corporate tax revenue. 

The government has set up a number of saving funds in recent years, with the stated intention of steeling the public finances against future economic shocks and financing long-term policy commitments.

These include the Social Insurance Fund, Future Ireland Fund, the Infrastructure, Climate and Nature Fund, the Ireland Strategic Investment Fund and the National Training Fund.

“Some of these funds were created as a vehicle to save volatile revenues for future spending. But the Government is now planning to spend most of these risky revenues, rather than save them,” IFAC, the independent budgetary watchdog, said.

“Planned surpluses are not large enough to fund contributions to these funds,” it said.

The government has been repeatedly criticised by opposition parties for not spending the large amounts of corporate tax it receives from multinational companies, but IFAC said in a report published today that it is actually spending the vast majority (five out of every six euro) of those receipts. 

IFAC said Ireland’s budgetary deficit (when corporation tax receipts are excluded) will continue to widen, from a forecast €11 billion this year to almost €21 billion by 2030, meaning the government’s reliance on corporation tax will grow.

Pointedly, the advisory council noted that these underlying deficits are coming at a time when the economy is actually performing well, with high employment and rising wages. 

Critics of government fiscal policy, including IFAC, have warned for some time now that if the sources of those corporate tax receipts — mostly American tech and pharmaceutical companies based in Ireland — were to dry up, the government’s finances would be left with a major shortfall. 

“This leaves the public finances less prepared for known and predictable future pressures, such as an ageing population and climate change,” IFAC noted.

Despite this risky footing, the government is set to increase spending to unsustainable levels, IFAC warned. 

Spending is due to increase by more than 7% per year up until 2030, “well above the sustainable growth rate of the economy (around 5%),” the council said.

At the same time, revenue is becoming more concentrated, mostly coming from corporation and income tax. In spite of this, the government recently cut VAT for the hospitality sector and spend a significant amount on energy supports already this year. 

Outside of things like energy supports, the council said a major factor contributing to spending increases are the “persistent” budgetary overruns in government departments.

Since Budget 2024, overruns have driven nearly 30% (€6.8 billion) of spending increases and IFAC said further overruns are already emerging this year, including in health and education.

Another issue that leads to overruns, according to the council, is poor budgetary forecasting. 

“General government forecasting continues to be poor,” the report said. 

The council has been critical of government forecasting methods in the past, which it said rely partly on “often unreliable survey responses from non-exchequer general government bodies”, which include the likes of RTÉ and Irish Rail. 

“Forecasts for non-commercial semi-state bodies have been a significant source of recent errors,” the council said. 

“This approach creates a disconnect between general government forecasts and gross voted expenditure forecasts.”

IFAC offered the example of the Department of Social Protection, which overspent its allocation last year even though social payments ended up being lower than forecast.

The council made a number of recommendations, including the introduction of legislation.

“Ireland needs its own domestic fiscal rule. This is partly because the medium-term plan is not an appropriate guide for budget decisions. This rule should be carefully designed and placed in legislation,” it said.