The governor of Central Bank, Gabriel Makhlouf, has expressed concern on Wednesday, highlighting that sustained violation of the budget spending rules will intensify inflation and negatively impact sustainable economic expansion.
The 2025 budget plan of €10.5 billion, which was revealed recently, is the fourth consecutive year the spending has exceeded the 5% growth rule the government established in 2021.
Mr Makhlouf addressed the Oireachtas finance committee on Wednesday stating, “In light of the prevailing conditions, the ongoing growing fiscal attitude contributes unessential stimulus to an economy that is fully employed.”
He recommended that it is crucial, given the current macroeconomic context, to avoid increasing net expenditure over 5% for a prolonged period. This fiscal attitude could possibly worsen price inflation and wage pressure, compromise competitiveness and pose risks to the sustainable economic growth.
While acknowledging the necessity for scheduled uplifts in infrastructure, the governor emphasised the importance of careful management to prevent the overheating of the economy.
In his words, “It would have been advantageous if the ascensions to public investments were absorbed while maintaining the overall net expenditure below the 5% mark.” He recognised that this would have inevitably led to complex judgements and sacrifices in other expenditure facets and taxation.
Furthermore, Mr Makhlouf defended the regulator’s choice to discontinue its standalone consumer protection unit in January and distribute its operations across various sectors, including banks, insurers, and investment firms.
He stated that the new methodology would facilitate the efficient allocation of supervisory resources to areas posing the most significant risks to consumers or the system, in general. “This approach of mainstreaming the consumer protection activities, will permit greater focus, as well as allocation of resources to areas at risk at a given time. In fact, this new approach will increase, and not decrease, consumer protection,” he assured.
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