The Irish Fiscal Advisory Council has accused the Government of "fiscal gimmickry" and "poor budgeting" in its formal response to October's Budget.
It says the Government is at risk of repeating the mistakes of the past with what it described as a "everything now" approach which will boost inflation and damage its credibility.
Prior to October’s Budget, the Fiscal Council warned about the Government’s plans to breach its own spending rule.
Its formal post-Budget Fiscal Assessment Report now doubles down on that criticism.
It says 71% of the cost-of-living supports announced in the Budget were untargeted. Along with income tax breaks, the Council believes inflation will as a result be 2.9% next year compared to 2.2% if the government had stayed within its spending rule.
It also says the Government has used "fiscal gimmickry" to "flatter its numbers" and has blurred the distinction between one-off and permanent increases in expenditure.
The Council said it believes Government spending next year will be €6.6 billion or 7.5% above what it would be if it stuck to its rule.
It particularly criticises the distinction between so-called "core" and "non-core" spending in the Government’s plans which it says "lacks transparency" and is used to make spending seem lower than is likely in areas like health and provision for those seeking shelter from the war in Ukraine.
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IFAC says: "These deliberate attempts to game fiscal assessments are deeply concerning."
The council’s report does, however, clearly welcome the Government’s decision to set up two investment funds at Budget time. The Future Ireland Fund could, it believes, potentially offset more than half of Ireland’s ageing costs in 2041 and a quarter of the costs by 2050.
It says the economy remains strong, with some signs of overheating earlier this year, and did not need the scale of stimulus delivered by the Budget package.
IFAC says it is not concerned about the recent volatility in corporation tax, which it believes should be properly budgeted for.
On the outlook for the economy, IFAC says the spending forecasts in the Budget are "unrealistic" and "lack credibility".
It remarks that overruns in health spending were building throughout this year and "were well known before Budget day".
It also believes the costs of the new public sector pay deal, currently under negotiation, are "unclear" and "may exceed unallocated amounts".
The Minister for Finance Michael McGrath said today he believes the Government struck the right balance in the Budget between "supporting the economy and society" at a time of high inflation and while also "providing for the future".
The Minister made his remarks in a statement in response to the Irish Fiscal Advisory Council's Fiscal Assessment Report, published today.
Minister McGrath said he fully respects the role of the Fiscal Council in providing a critique of government budgetary policy.
The Minister’s statement also notes that Ireland was one of only seven EU countries whose budgets received a positive assessment from the European Commission.
Minister McGrath's statement on the Fiscal Council report
I fully respect the role of the Fiscal Council in providing a critique of government budgetary policy.
I believe the government struck the right balance in the Budget between supporting our economy and society at a time high inflation, while also providing for the future. I would strongly argue that the government’s decision to provide further cost of living supports to households in Budget 2024, many of whom remain under pressure from high energy costs and other day to day essentials such as grocery costs, was the right one.
I also believe we made the right decision to increase capital expenditure, as this allows us to build more homes, schools, healthcare facilities, transport infrastructure - all of which we need for a growing population. The income tax reductions - which kick in on 1 January 2024 - will allow people to keep more of their hard earned money and will support the domestic economy next year.
This government achieved a surplus of over €8 billion in 2022 and is on course for large budget surpluses this year and next, despite having come through successive shocks including the pandemic, and the spiral of inflation caused by the Russian invasion of Ukraine. I also note that Ireland was one of only seven countries in the EU whose budgetary plans for 2024 were given a strongly positive assessment by the European Commission.
Our national debt is falling relative to the size of our economy, and we are setting up two new funds to provide for the future cost of demographic changes, the climate transition and digitalisation. I welcome the strong support from the Fiscal Council for these two new funds. Work on the preparation of the legislation to establish these funds is at an advanced stage and I will bring this legislation to Cabinet for approval in the coming weeks.
The budget documentation sets out, in an open and transparent way, the taxation and expenditure plans for 2024, and also our macroeconomic and fiscal projections for the coming years. Ireland has a well-developed budgetary process with clear steps involving multiple publications of key documents across the year. IFAC and its assessments are an important part of this budgetary process, and my Department and I will carefully consider their report.
