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Irish Independent
a day ago
- Business
- Irish Independent
The Irish Independent's View: Government must wake up to state watchdog's spending warning
These are the words of American economic historian Thomas Sowell. It might seem as if our Government has gone to some lengths to prove him right on both counts in the eyes of the Fiscal Advisory Council (FAC). The state watchdog is concerned that spending is up almost 6pc already this year. 'At the current pace of growth, overruns of €2bn are likely,' the Fiscal Assessment Report says. The extravagance can once again be traced back to bumper corporation tax receipts. As we know, the incoming billions are the envy of many European leaders; and a source of considerable indignation to Donald Trump. The US president has made it plain that though he 'likes' us, we are causing him a world of pain when he sees what he regards as 'US tax dollars' flowing out of American coffers and into those of the Emerald Isle. He has warned he is 'coming for them' and we have no reason to doubt him. The FAC has been warning for the past few years that over-reliance on such golden windfalls could leave the State dangerously exposed when they come to an end, as they inevitably will. Today's warning is even more shrill. It notes that while phenomenal levels of excess corporation tax are keeping Ireland in surplus, 'without these revenues, there would be a substantial deficit, despite a strong economy'. The report acknowledges that while the tide of good fortune could persist for a while yet, it will turn, so depending on it is 'high risk'. It also notes how just three companies account for most of the excess corporation tax. A particular worry of the council is that the over-runs are not being acknowledged in new forecasts. Every blessing ignored becomes a curse Its chairperson, Seamus Coffey, even raised a concern about the 'plausibility' of the numbers being presented. He said it's hard to know precisely how overstretched government departments are, because monthly figures are not supplied. The projected figures for 2025 expenditure remain unchanged, even though it is likely to rise by €3.7bn. This, the report states, is 'simply not credible'. ADVERTISEMENT Philosopher Paulo Coelho said: 'Every blessing ignored becomes a curse.' Taking a rosy financial future for granted, which is written on such shifting sands, could come at extreme cost. Spending what we can afford really ought not be such a radical concept. There is a sword of Damocles over the world's economy thanks to Trump's tariffs. The potential for wider wars in the Middle East or Ukraine could also wreak global trade havoc. Relying on the comfort of things we have taken for granted tends to come with a rude awakening. How long can we continue to get away with pressing the snooze button on the FAC's alarm calls?
The Journal
a day ago
- Business
- The Journal
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 / © Leah Farrell / © / © 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. Advertisement '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. Readers like you are keeping these stories free for everyone... A mix of advertising and supporting contributions helps keep paywalls away from valuable information like this article. Over 5,000 readers like you have already stepped up and support us with a monthly payment or a once-off donation. Learn More Support The Journal
