The Central Bank has warned the Government's planned Budget package of €9.4bn of additional spending is "too large" and "unnecessary".
The bank said the "sharp increase" in Government expenditure would impact on the public finances.
It also said there would be a larger underlying deficit than had been expected this year when one-off factors are excluded.
It said expenditure by Government departments had recorded strong growth so far this year and the ceiling for expenditure has been raised.
It means that when one off-factors are excluded the underlying deficit will be 3.3% of national income this year.
It said revenue collected by the State will moderate over the coming years leading to a deteriorating underlying deficit.
It added broadening the tax base by generating revenue from more sources is needed to help to pay for the increased expenditure envisaged under the National Development Plan and continuing the existing level of public services.
The Central Bank also revised upwards its forecast for economic growth for this year and said the immediate impact of US tariffs will not be as damaging as expected earlier.
The bank expects the domestic economy to grow by 2.9% this year, a revision of almost one percentage point up from its previous forecast.
However, it expects more moderate growth over the coming two years with the economy expanding by 2.2% next year and 2.4% in 2027.
Robert Kelly, director of economics and statistics said: "The economic outlook is not as favourable as it would have been had US tariffs not been introduced, but the tariff rates covering EU-US trade are lower than had been expected earlier in the year."
Research published by the Central Bank said national income would be in the region of 1% lower than previous forecasts over the next five to ten years due to US tariffs.
The bank also said it expected 32,500 homes will be built this year but has revised downwards its forecast for housing by 1,500 for 2026 and 2027 to 36,000 and 40,000 respectively.
The development follows weaker than expected data for planning permissions published by the Central Statistics Office this week.
