The upcoming budget poses significant risks to public finance, according to the Irish Fiscal Advisory Council (IFAC). With general elections looming, the government may succumb to the temptation of using this budget to sway voters through pleasing promises of higher spending and tax cuts. The simmering pressures within the Cabinets are likely to exacerbate this situation in the forthcoming months.
Responding to this scenario, the IFAC – the financial observers of the budget – have sounded the alarm with their recent appraisal. Their stance is that the government’s handling of public finance lacks the necessary caution, warning against the “everything now” approach which entails tax reductions, surged current spending, and accelerated capital expenditure concurrently. This strategy, they fear, mirrors the government’s expected plan, but they remain hopeful that their interjection would prompt moderation.
The IFAC’s stance rests on well-trodden grounds, including concern over an economy already at its maximum capacity and the risk of overheating from additional stimuli. The council cautions that tax revenues, especially from businesses and personal income, could be unstable due to the narrow basis. They accuse the government of “fiscal gimmickry”, criticising the lack of adequate provisions for future expenses, including those likely to become permanent such as housing for refugees and some healthcare costs – which, however, continue to be treated as transitory.
Deciphering the present condition of Irish public finances presents a challenge, partly due to the unpredictability of corporate tax revenues. Despite the government’s claims of a financial surplus and the allocation of funds into two reserves, the IFAC argues that the budget still suffers from an underlying deficit when excluding exceptional corporate tax receipts. The relevance of this disparity hinges on the performance of the corporate tax and the continuation of this windfall.
The council’s firm standpoint is that a further overarching “giveaway” budget would be inadvisable. They assert that the government must rigorously prioritise its spending and resist the urge to scatter funds indiscriminately. Adjustments for inflation should be made concerning welfare and taxes, and attention should be directed to urgent areas of need. Moreover, they advocate for the advancement of crucial investment projects.
As inflation rates plummet swiftly, there is no justification to pour additional billions into one-time comprehensive aids for families. This issue is already triggering disagreements within the Government. The council likely wishes that its counsel will lend support to those advocating prudence and help minimise the impact. However, it appears that the 2025 Budget will not be viewed favourably by the budget oversight body.