HomeBussinessGovernment’s budgetary claim “not true”, says watchdog

Government’s budgetary claim “not true”, says watchdog

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The independent body, which has been a persistent critic of current policies, has zoomed in on the reason given for increasing the budgetary package to €8.3bn. The Summer Economic Statement, published yesterday, said the package had been adjusted “to accommodate higher capital spending”.

Ifac says that investment plans for 2025 have not changed since April when the Government published its Stability Programme Update (SPU).

Niall Conroy, Ifac’s acting chief economist, told the Irish Independent: “In the SPU they had spending growing at about 5pc, and now they have it at almost 7pc. But capital spending has not gone up since their forecast in April.” Ifac says all the extra money will actually go on current spending.

The advisory council claims the Government appears to be avoiding making choices in the Budget, due to be unveiled on October 1. “Instead, an ‘everything now’ approach of current spending increases, tax cuts and increased investment are all planned for next year,” it said in a post on Twitter/X.

Jack Chambers, the Minister for Finance, has announced that there will be additional public spending of €6.9bn next year, an increase of 6.9pc, well ahead of the 5pc limit the Government has set itself. There will also be €1.4bn in tax cuts.

Ifac says if the Government wanted to increase spending by more than 5pc, it could have financed it with tax increases. “Breaking the National Spending Rule now increases the risk of the economy overheating and adds to inflation pressure,” it said.

“Recent work by the Central Bank suggests that by breaking the spending rule in the last two years, prices are 1pc higher than they would have been otherwise.”

Mr Conroy said as the Irish economy is performing well, with unemployment at a record low, there is no need to pump more money in. “You have to make choices in that context – between tax cuts, current spending increases and investment. If you want to increase spending by more than 5pc that’s fine, but you can raise taxes to offset that additional spending.”

When windfall corporation tax receipts are excluded, the Government is planning on having a budget deficit of €5.5bn next year, despite the strength of the economy. Ifac commented: “If underlying surpluses are not being run now, when would they be run?”

It has welcomed the Government’s belated efforts to budget fully for health costs, providing an extra €1.5bn this year and €1.2bn next year. “However, given recent data on health spending,” Ifac warns, “overruns in 2024 look likely to be higher than the €1.5bn assumed in the Summer Economic Statement.”

The council has also put a cost on how much it would take to fully index the tax system next year, which Mr Chambers has indicated may be a feature of Budget 2025. The Finance Minister has said that the beneficiaries of tax changes will be low- and middle-income earners, ensuring that the increases in take-home pay they have enjoyed this year are not gobbled up in income tax. This would be done by adjusting the tax bands and credits.

Ifac says the cost of indexing the tax system would be €1.1bn, which would leave only €0.3bn for Mr Chambers to use for other reliefs.

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