IFAC warns Budget 2027 likely to be larger than announced

The Irish Fiscal Advisory Council (IFAC) has expressed concerns that the budget package for Budget 2027 may be significantly larger than initially announced. In a pre-budget statement, IFAC highlighted that spending overruns have become the norm and have consistently exceeded budgeted plans. Over the past decade, these overruns have averaged over €2 billion annually in today's terms. The last instance where spending was at or below the budgeted levels was in 2013.

IFAC also pointed out that the government's Summer Economic Statement suggests a net spending growth of 6% for 2027, which is higher than the sustainable growth rate of the economy, around 5%. As a result, IFAC believes it is not suitable for an economy that is already in a strong position to endure such a budget. The Council's assessment indicates that the economy continues to perform well, with employment growth, and thus, does not require support from budgetary policy.

Moreover, IFAC warned that a large budget package could exacerbate inflation and increase costs for households and businesses. The government faces substantial spending pressures in 2027, including an aging and growing population and inflation. These pressures could amount to €8 billion in 2027, potentially absorbing much of the funding allocated for new measures.

In addition to these concerns, IFAC advocated for Ireland to establish its own domestic budgetary rule. The current medium-term plan, which is the only framework in place, allows net spending to grow faster than the economy's sustainable growth rate. This could lead to an even greater reliance on risky corporation tax receipts, with only €1 saved out of every €8 collected.

IFAC stressed the need for a carefully designed budgetary rule, preferably legislated, to protect public investment that was significantly reduced after the financial crisis. The Council proposed five recommendations, including limiting net spending growth to the sustainable growth rate, setting realistic spending ceilings, and running larger surpluses.

IFAC Chairperson Seamus Coffey noted that while the government's plans for Budget 2027 are slightly larger than what the Council would deem appropriate, the major concern lies in the actual budget package likely to be announced on Budget day.