Watchdog warns that Government's fiscal plans 'lack credibility' as spending to overrun again
THE GOVERNMENT'S FISCAL plans 'lack credibility', the Irish Fiscal Advisory Council has warned, as the Department of Public Expenditure has failed to turn over its monthly spending profiles to allow the council to forecast beyond 2026.
The council's chairperson Seamus Coffey yesterday briefed reporters on today's Fiscal Assessment Report. The report, with the tagline 'Ireland's outlook: strong today, uncertain tomorrow', warned of the current volatility of Ireland's longtime reliance on corporation tax as uncertainty arises from mooted tariffs from the US and further trade tensions.
Coffey highlighted that despite the strength of Ireland's economy and financial surpluses, without these factors, there is a structural deficit of 2.4% of gross national income (previously known as gross national product) – equivalent to €2,500 per worker.
The council has been unable to construct a medium-term forecast due to the department's failure to turn over spending profiles, as well as the government's refusal to commit to a fiscal rule. Fiscal rules are permanent constraints on a government's fiscal policy.
It is suggested that the failure to turn over spending profiles to the council and the fact that departmental spending ceilings for 2026 and 2027 have not been published is due to potential transfer of functions within the department that is ongoing.
Ministers Paschal Donohoe and Jack Chambers pictured in the Department of Finance after the publication of the Annual Progress Report 2025 and April's Fiscal Monitor.
Leah Farrell / © RollingNews.ie
Leah Farrell / © RollingNews.ie / © RollingNews.ie
Coffey said that this highlights that there is no medium-term plan or strategy apparent. The council's report found that the government is overspending in certain areas but emphasised the importance of investing in infrastructure and competitiveness.
Employment is at a record high. The growth has been driven by the state and multinationals. Financial services, computer programming and basic pharma products account for roughly 300,000 people in employment in Ireland, the council said.
'Choices must be made. You can't do everything at once,' Coffey said of the government's list of stated priorities. 'In some areas, we can look at maybe where spending could happen that mightn't generate domestic pressures.
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'When it comes to infrastructure, a lot of it probably has to be supplied domestically. So you look at housing, transport, an issue there is if you spend additional money, where are the resources going to come from to generate the additional output?
'If the unemployment rate is just over 4%, you don't have this big stock of construction staff just sitting there and say, 'Oh, we're spending three billion on extra infrastructure that's going to give us his extra output'. It might just end up having more money chasing fixed resources and just driving up the prices.'
Concerns were raised regarding the credibility of budget forecasts, as the department has not accounted for spending overruns in 2024 and 2025. It has also not accounted for the once-off double week Christmas bonus social welfare payment.
The predicted overspend is mostly the result of poor budgeting, the council said.
Corporation tax is likely to be higher than forecast, the report found. This has been put down to BEPS (anti-base erosion profit shifting) reforms that mean
groups with a turnover of over €750m will pay a 15% minimum rate of tax
in every jurisdiction in which they operate.
Some 30 to 40% of corporation tax paid by US multinational companies in Ireland comes from three companies, the council said its analysis suggests. It did not identify the three firms.
Ireland's
record export of pharma products earlier this year
mean that exports are likely to be above its forecast, even if the level weakens considerably across the remainder of 2025.
The Irish Fiscal Advisory Council has issued four key recommendations to the government on the back of its report, the first being for the government to commit to a fiscal rule.
It also recommended that the government use budgetary policy to 'reduce the ups and downs of the economic cycle', meaning that it shows restraint when the economy is string, like at present, and being more generous when it is struggling.
The council advised that the government set realistic spending forecasts and move towards medium-term budgeting, calling on it to include previous overruns to paint a more accurate and clearer picture of Ireland's current fiscal situation.
'No matter how the economy evolves, Ireland needs to address shortages of key infrastructure,' the council stated.
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