State spending watchdog hits out at 'poor budgeting' by Government
The Irish Fiscal Advisory Council (IFAC) has repeatedly warned about the dangers of relying on windfalls from large amounts of corporation tax.
On Tuesday, Minister for Finance Paschal Donohoe unveiled the Summer Economic Statement (SES), which sets out €9.4billion in spending plans for Budget 2026. On Tuesday, Minister for Finance Paschal Donohoe unveiled the Summer Economic Statement (SES), which sets out €9.4billion in spending plans for Budget 2026. Pic: Leah Farrell/RollingNews.ie
The IFAC, which was established after the financial crisis to monitor Government budgetary planning, yesterday released its analysis of the SES.
It shows that despite the economy performing well, the country would have a budget deficit of almost €11billion if windfall corporation tax receipts were excluded.
The SES pledged a total budgetary package of €9.4billion, an increase of €1.1billion from last year's Budget. Some €1.5billion is being committed to tax cuts, with about €1billion of this being spent on reducing the VAT rate for the hospitality sector. Pic: Shutterstock
Some €1.5billion is being committed to tax cuts, with about €1billion of this being spent on reducing the VAT rate for the hospitality sector. The remaining €7.9billion will be spent on increases in spending, up 7.3% on last year.
The projections are based on the unlikely scenario of no tariffs being imposed following the conclusion of negotiations between the EU and the US in the coming weeks.
The SES said that if there is a 'deterioration in the tariff landscape', the Government will 'recalibrate its fiscal strategy'.
But the IFAC said that this runs contrary to 'standard economic advice' against reducing the level of spending.
It wrote: 'The SES states that if there is a deterioration in the tariff landscape, the Budget 2026 package would be smaller. This is exactly the opposite of standard economic advice.
'Countercyclical policy means giving more support when the economy is weak and less when it is strong.'
The IFAC, which is chaired by economist Professor Séamus Coffey, wrote that overspends were 'inevitable' and estimated that spending would increase by €1billion more than planned for in the SES.
The watchdog's analysis shows that spending is set to double between 2025 and 2026 and that it expected the figures outlined to increase. 'Budget 2025 had planned a €3billion increase in spending,' it said.
'Yesterday [Tuesday], this was revised up by €3.3billion, meaning the actual 2025 increase will be more than double the original plan. Based on spending data for the first six months of the year, this upward revision is likely insufficient. Analysis by the council suggests current spending is likely to be around €1billion higher than the SES figures.'
The IFAC predicts 'this year's spending overrun is likely to carry into next year' and that this needs to be accounted for by the Government to avoid budgetary overruns.
'If this is not acknowledged before Budget Day, further spending overruns next year are almost inevitable,' the report said.
The IFAC wrote bluntly that 'this all points to poor planning and budgeting'. The body also criticised the Government for being too 'short-term' in its economic outlook.
'The Government has yet to outline a fiscal framework. It has not set a limit for what it sees as a sustainable pace of net spending growth,' the report stated.
The spending watchdog called on the Government to publish a medium-term fiscal-structural plan, which it committed to doing alongside the SES in the Programme for Government.
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