The Department of Finance has issued a note explaining the difference between it and the Irish Fiscal Advisory Council on the estimated size of the fiscal space - the amount of money that will be available to the next government to increase spending or cut taxes by.

The department has estimated a gross fiscal space of €12.7bn if the next government does not index tax bands to reflect cost of living pay increases.

Assuming the government does index tax bands in line with current policy, and allowing for pre planned spending increases, the department arrives at a net fiscal space of €8.6bn.

However, the fiscal council says the net amount of fiscal space - after allowing more money for demographic pressures, and inflation proofing existing levels of public spending - could be as little as €3.2bn. This leaves a gap between the two estimates of over €5bn.

The department explains the difference by saying that there is no automatic indexation of government spending to inflation in its figures as this would reduce the government’s scope for decision making.

For the same reason, there is no provision for public sector pay rises beyond 2018 - because no government decision has been made on the issue.

It says any such decisions are a matter for the next government.

In a post on the department's website, it says: "The Department of Finance reports the figures for fiscal space in nominal terms - there is no automatic indexation of public expenditure to inflation over the period 2017-2021, as there has been no Government decision to this effect.

“The difference between the Department's figures and those of the IFAC reflects the fact that their estimates assume that various forms of social benefits (unemployment benefits, old age pension, child benefit payments, etc.) are indexed to the rate of inflation. Their numbers are also based on the assumption of public sector pay increases beyond 2018. 

“Any such increases in expenditure are a matter for the government of the day and require a policy decision as part of the annual budgetary cycle. To include these measures in the fiscal space by the Department of Finance would be an assumption on future policy decisions, which are a matter for the next Government," the statement concluded.