Budget ignores spending 'speed limit' and uses ‘high-risk’ receipts to fund plans, says watchdog

THE GOVERNMENT IS continuing to use “high-risk” receipts to fund permanent tax and spending measures, the state’s fiscal watchdog has warned.

Following the publication of Budget 2027, the Irish Fiscal Advisory Council (IFAC) was critical of the government’s spending habits, saying it should be saving more of the risky receipts.

The “flash release” document, entitled Fast and Loose, stated that Tuesday’s budget puts the public finances on a “worse trajectory” by “repeatedly breaking established spending limits and increasingly relying on high-risk corporation tax”.

It said that the budget comes at a time when the Irish economy continues to perform remarkably well.

It said that wages on average are still rising faster than prices.

“When the economy is doing this well, a government should normally show restraint and hold fire until the next downturn,” it said.

IFAC said that successive governments have raised spending and adjusted taxes at a “blistering pace” in recent years.

“A sustainable speed limit of 5% for both was set in 2021,” it added.

“But governments have since budgeted for around 6% growth, before actually delivering about 10% a year on average, double the speed limit.

“Today’s figures suggest an increase of almost 9% in 2026 if overruns continue at their current pace.

“When the economy is doing this well, a government should normally show restraint and hold fire until the next downturn.

“But the current Government is attempting to raise spending in many areas, limit tax burdens, tackle cost-of-living challenges, and address infrastructure gaps all at once , rather than choosing between them.”

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It added that spending has grown on average double the sustainable limit.

It said that the budget shows overspends of €2.1 billion in 2026 for current spending.

“The overspend would be expected to rise to €2.5 billion if spending continues at its recent pace. Today’s Budget continues this practice,” it added.

With record numbers already in work, the ambition to do more in many areas risks pushing up costs rather than delivering more services or infrastructure.

It said that overspends look likely to happen again next year and that the Department of Health could overspend by almost one billion euro this year in current spending.

“The rate of expansion has meant that more and more of the extraordinary corporation tax the state is collecting is being spent rather than saved,” it added.

“Six in every seven euro of total corporation tax is being spent, with just one in seven saved.

“Ireland’s tax base has become heavily concentrated. Just three firms pay nearly half of all corporation tax. And the top 20% of individual earners pay three-quarters of income tax.

“The government plans to run large and growing deficits. Based on the Government’s figures, deficits rise to €20 billion in a few years, about the size of annual spend on education and children.

“This is despite having low unemployment and a relatively young population.

“Ireland’s government debt is now set to rise by more than €35 billion by 2030. All the while the annual interest bill is forecast to more than double, reaching €6.4 billion.

“The government should be saving more, making its tax base more secure, and avoiding aimless drift.

“It should stick to some rule on how fast it cuts taxes and increases spending.

“This would help ensure it can support people’s jobs in the next recession and avoid a disastrous repeat of the cutbacks in areas like housing that happened after the last crisis.”