Govt adopting ‘everything now’ approach to budget – IFAC

The State’s fiscal watchdog has claimed that the Government is adopting an ‘everything now’ approach of current spending increases, tax cuts and increased investment for next year’s budget.

Responding to the publication yesterday of the Summer Economic Statement, the Irish Fiscal Advisory (IFAC) also said that by breaking its own rule limiting spending increases to 5%, the Government is increasing the risk of the economy overheating and adding to inflation pressure.

“The plans for the budget are significantly more expansionary than April’s Stability Programme Update,” IFAC said in a series of tweets on social media platform X.

“This comes at a time when the economy is performing well. Unemployment is at record lows and employment is at record highs.”

“As a result, the economy does not need more money pumped into it from Budget 2025.”

The council also said that when windfall corporation tax receipts are excluded, the Government is planning on running a deficit of €5.5 billion next year.

“This comes while the economy is performing well. If underlying surpluses are not being run now, when would they be run?” it asked.

IFAC also alleged that the claims in the SES that the increased budget package for 2025 is to, in part, fund higher capital spending, is not true.

“Plans for investment in 2025 are unchanged from the April forecasts. Instead, all the increased spending in 2025 is for current spending,” IFAC stated.

“€1.3 billion of additional capital spending has been added in 2026 and 2027, relative to April’s forecasts.”

It also said that the Summer Economic Statement suggests a package of tax cuts in Budget 2025 of around €1.4 billion, which would be approximately €300m above the cost of indexing the tax system.

“The National Spending Rule takes account of spending increases net of tax changes. It limits the overall net increase to 5%. If a Government wants to increase spending by more than 5%, this can be done. But it requires tax increases to pay for the extra spending,” IFAC said.

As a result, the council said the Government appears to be “avoiding making choices in Budget 2025.”

“Instead, an ‘everything now’ approach of current spending increases, tax cuts and increased investment are all planned for next year,” it said.

The council added that it does welcome attempts to appropriately budget for health costs.

“However, given recent data on health spending, overruns in 2024 look likely to be higher than the €1.5 billion assumed in the Summer Economic Statement,” it said.

It also welcomed the plans to put excess corporation tax receipts into two funds to help meet the cost of future challenges.