Government’s budget plan will ‘needlessly’ add to pricing pressures in economy, warns watchdog

The State’s budgetary watchdog has accused the Government of “needlessly” adding to price pressures in the Irish economy.
In a pre-budget submission, the Irish Fiscal Advisory Council (Ifac) claimed the Coalition was pursuing an “everything now” approach in the upcoming budget by simultaneously promising tax cuts, higher day-to-day spending and a continued ramp-up in capital investment.
At a time of record high employment and rising real wages, this would add “unnecessary fuel to the fire”, it said.
While falling energy prices had brought some relief, the council said that domestic prices, including rents, food services and medical costs, were continuing to rise rapidly.
In its submission, it claimed that successive breaches of the Government’s spending rule had already added €1,000 to yearly household expenses. The spending rule seeks to limit annual increases in public spending to 5 per cent, viewed as a sustainable rate for the economy.
“The Government continues to make big promises,” said the council’s new chairman, Séamus Coffey. “This is driving up prices and making it harder for people to afford the basics,” he added.
“Price increases may have slowed, but there are many areas where pressures remain high. If we are to learn from past mistakes, now is the time for the Government to stick to its own rule rather than to have to hit reverse later on, and potentially in the next recession,” said Mr Coffey.
Ifac’s attack on the Government’s budget strategy comes after a warning from Fianna Fáil Minister for Finance Jack Chambers that recent increases in current spending could not be maintained and that he was not afraid to say “no” to spending requests from other Ministers.
“We have to be careful. We can progress current spending in future in areas of priority, but not at the run rate we’ve had,” said Mr Chambers on Tuesday.
Ifac, however, accused the Government of failing to prioritise, noting that spending overruns and “untargeted” cost-of-living supports could mean next year’s budgetary package rises to double the size of the pre-Covid ones.
As well as adding to existing price pressures, the Government also risked having to reverse its promises later on, said the council.
The Government’s spending and tax plans are being facilitated by an expected budget surplus this year of more than €8 billion.
But Ifac claimed, “the boasts of a surplus are misleading”.
“The surplus is entirely driven by taxes from a handful of foreign multinationals. Without these, Ireland would be facing a large and growing deficit … further exacerbated by overruns,” it said.
The Government might be forced to renege on its promises “if things change suddenly”, it said.
“For example, if corporation tax revenues suddenly shrank or if exceptional job numbers reversed. A reversal like this could come at a time when the economy most needs support,” the watchdog said.
This, it said, would repeat the State’s past mistakes.