Ireland’s budget package for 2027 is likely to be significantly larger than the measures announced on Budget Day, the Irish Fiscal Advisory Council (IFAC) has warned, raising concerns about increased inflation and pressure on households and businesses.
In its pre-budget assessment, the fiscal watchdog said government departments have repeatedly exceeded their spending limits over the past decade. Spending overruns have averaged more than €2 billion a year in today’s terms, with 2013 the last year when spending remained at or below the levels set in the budget.
IFAC said the Government’s Summer Economic Statement points to net spending growth of 6% in 2027. That is above the estimated sustainable growth rate of the economy, which the council puts at about 5%.
The watchdog said Ireland’s economy is already performing strongly, with employment continuing to rise, meaning the country does not need additional budgetary stimulus.
IFAC warned that a large package of new spending could instead increase inflation and raise costs for households and businesses.
The council also highlighted major spending pressures that will exist before any new policies are introduced. Population growth, an ageing population and inflation could create additional costs of about €8 billion in 2027, potentially using much of the money available for new measures.
Speaking on RTÉ’s Morning Ireland, IFAC Acting Chief Economist Niall Conroy said the Government should show restraint and establish realistic spending limits for departments.
He said additional resources were unlikely to generate significant gains in employment or economic activity because the economy was already operating well. Instead, he warned, increased government spending could contribute to higher prices.
IFAC also raised concerns about Ireland’s heavy reliance on corporation tax revenue, which it considers vulnerable to changes in international business conditions.
The council said following the Government’s current medium-term spending framework could leave Ireland even more dependent on corporation tax receipts. It estimated that €7 of every €8 collected through corporation tax would be used for ongoing spending, with only €1 being saved.
The watchdog called for a domestic budgetary rule to be introduced through legislation. It said such a rule could help ensure spending grows at a sustainable pace while protecting investment during economic downturns.
IFAC made five recommendations ahead of Budget 2027, including limiting spending growth to the economy’s sustainable rate, setting realistic departmental spending ceilings and saving a larger share of corporation tax receipts.
It also urged the Government to continue planned contributions to long-term savings funds and build larger budget surpluses.
IFAC Chairperson Seamus Coffey said the Government’s planned Budget 2027 package was already somewhat larger than what the council considered appropriate. His greater concern, however, was that spending overruns could make the final package considerably larger than the measures announced on 6 October.
