OECD warns Irish Government to keep lid on ‘surging public spending'

Irish Independent

2 days ago

"Looming risks warrant greater fiscal prudence," the report says in relation to Ireland.
The Organisation for Economic Co-operation and Development (OECD) has 38 member states, including Ireland, and acts as a think tank to promote international trade and prosperity.
The report stops well short of calling for a return to austerity, but says Ireland needs to prioritise spending and focus on investment that delivers for the economy long term – including housing – and better target spending in general.
Figures earlier this year from the Department of Finance showed that Government spending in 2025 was up 50pc on pre-Covid-19 levels thanks to increases under the previous Fine Gael and Fianna Fáil-dominated coalition. The two parties have since returned to power.
'Higher investment in housing, transport and energy infrastructure is essential to maintain foreign investor confidence and preserve living standards,' the report says.
That investment should be scheduled to avoid causing a surge in prices, it says.
'Additionally, greater emphasis should be placed on improving spending efficiency – supported by comprehensive spending reviews, stricter domestic fiscal guard-rails, and better-targeted income support where needed,' it says.
Windfall corporation taxes should continue to be allocated to the long-term savings funds, it says.
Given the nature of the economy, Ireland is especially exposed to the threat from a US trade war, the report warns.
The OECD is forecasting a significant slow down in economic growth here; with modified domestic demand predicted to slow to 2.2pc this year and 2.1pc in 2026 – both well below the long-term average. The budget surplus is expected to narrow, though not close.
Tariff-related concerns are expected to weigh on consumers, even with strong jobs and wage data, while the export sector and multinationals are heavily exposed to any hit to US trade.
Gross domestic product (GDP) growth is projected to be 3.7pc in 2025, slowing to 2.3pc next year as trade fragmentation weighs on export-oriented sectors.
Uncertainty will encourage households to save more and spend less.
While the Government is expected to have less money at its disposal than in recent years, the report calls for higher investment in housing, transport and energy infrastructure.
With labour shortages in many sectors it suggests boosting incentives in the tax and benefit system, alongside improving the supply of quality vocational pathways into skilled work.
Meanwhile, the OECD is forecasting that the US economy will see growth slow further to just 1.5pc in 2026. Donald Trump's policies have raised average US tariff rates from around 2.5pc when he returned to the White House to 15.4pc, the highest since 1938, according to the report.
World economic growth will slow to 2.9pc this year and stay there in 2026, according to the forecast. That is well down on global growth of 3.3pc last year and 3.4pc in 2023.
Without mentioning Mr Trump by name, OECD chief economist Alvaro Pereira wrote in a commentary accompanying the forecast: "We have seen a significant increase in trade barriers as well as in economic and trade policy uncertainty. This sharp rise in uncertainty has negatively impacted business and consumer confidence and is set to hold back trade and investment.''
China – the world's second-biggest economy – is forecast to see growth slow from 5pc last year to 4.7pc in 2025 and 4.3pc in 2026.
Euro area growth is tipped to accelerate, however, up from 0.8pc last year to 1pc in 2025 and 1.2pc next year, in part thanks to rate cuts from the European Central Bank.