The Irish economy appears to be close to its potential in terms of growth, according to the chair of the Irish Fiscal Advisory Council.

Seamus Coffey, along with other members of the IFAC, was addressing the Oireachtas Committee on Budgetary Oversight following the publication of their latest Fiscal Assessment Report earlier this month.

He said that the economy had grown strongly for a number of years, with forecasts of 3% to 3.5% growth in the coming years.

Staying within that range would represent a sustainable pace of growth. However Mr Coffey noted that, over the past 50 years, Ireland had only managed to do that around one third of the time.

What was key was for the Government to avoid stimulating an already strengthening economy, the committee heard.

This did not mean that it should avoid, for example, cutting taxes, but that any such move is counterbalanced with spending cuts or tax increases in other categories.

The Government should also avoid what is called 'fiscal drift', where unexpectedly high tax take in one year is treated as permanent rather than a one-off.

On the housing market, for example, council member Martina Lawless detailed a careful balancing act that needed to be achieved in the coming years.

Rising house and rent prices was a risk to Ireland's competitiveness, she said, but an increase in house building must also be carefully managed to ensure the sector does not become over-heated.

Additional Exchequer revenue could also be diverted to the newly-established 'Rainy Day Fund', though council member Michael Tutty said this needs to be strengthened if it is to utilised properly.

The Government already plans to establish a €1.5bn Rainy Day Fund this year, with €500m being added to it in each of the next three Budgets.

Its aim is to increase the fund to €8bn in the medium-term.

However Mr Tutty told the Oireachtas committee that this did not represent a fully-fledged rainy day fund and that there need not be a limit on the amount added each year, or its ultimate size.

Mr Tutty also said that there would need to be changes to the European Union's fiscal rules to allow for any rainy day fund to be properly deployed in the event of a downturn.

This might see investments in the fund being treated as expenditure, but not withdrawals.