IFAC warns Budget 2027 likely to be larger than announced

The Irish Fiscal Advisory Council (IFAC) has warned that the actual budget package is likely to be much larger than what is announced in Budget 2027 on 6 October. In its pre-budget statement, IFAC said spending overruns have become "routine and have repeatedly pushed spending above budget-day plans". It notes that "over the past decade, spending overruns have averaged more than €2 billion per year in today's terms. The last time spending was at, or below, budgeted levels was in 2013". In its assessment, the fiscal watchdog also said the Government's Summer Economic Statement "implies net spending growth of 6% in 2027" but that "this is faster than the sustainable growth rate of the economy of around 5%". IFAC added: "As a result, it is not appropriate for an economy that is already in a strong position." According to the statement, the economy "continues to perform well, with employment still growing" and as a result does not need support from budgetary policy. The Council also warned that a large budget package would "add to inflation and increase costs for households and businesses". Government facing 'significant spending pressures' IFAC also noted that the Government "faces significant spending pressures in 2027 before any new policy measures are introduced" - including a growing and ageing population, and inflation. It said these pressures could amount to €8 billion in 2027, which "would absorb much of the funding available for new measures next year". The watchdog's pre-budget submission also calls for Ireland to have its own domestic budgetary rule. "The Government's medium-term plan is the only framework currently in place. However, it is not an appropriate guide for budgetary policy. It allows net spending to grow faster than the economy's sustainable growth rate. "Following this plan would result in an even greater dependence on risky corporation tax receipts. "It would mean €7 out of every €8 collected in corporation tax would be used for ongoing spending commitments. Just €1 would be saved. "Ireland needs its own domestic budgetary rule. This should be carefully designed and set out in legislation. Such a rule could help protect public investment, which was cut sharply after the financial crisis," IFAC said. In total, the Council has made five recommendations ahead of the budget, including limiting net spending growth to the sustainable growth rate of the economy; setting realistic spending ceilings that take account of "likely spending levels this year", as well as cost pressures likely to be faced in the coming years; running larger surpluses and saving a greater share of corporation tax receipts; and continuing to make planned contributions to savings funds. Commenting on the report, IFAC Chairperson Seamus Coffey said the Government's plans for Budget 2027 are "slightly larger than what the Council would deem appropriate. "But the bigger concern is that the actual budget package is likely to be much larger than what is announced on Budget day. "Spending overruns have been routine over the last decade and have resulted in Government spending growing much faster than originally planned," he said.