Irish government warned it risks overheating economy

At a glance
  • A budget watchdog warns the Irish government it risks overheating the economy
  • The government's budget will include core spending increases of 鈧5.2bn (拢4.4bn) and additional temporary spending
  • The Irish Fiscal Advisory Council says there is "little to no justification for further temporary non-core measures"
  • Author, John Campbell
  • Role, 大象传媒 News NI economics and business editor

Image source, HJBC

The Irish government is at risk of overheating the economy in a repeat of past mistakes, the country鈥檚 budget watchdog has warned.

The Irish Fiscal Advisory Council (IFAC) has published its analysis ahead of next month鈥檚 budget.

The budget will include core spending increases of 鈧5.2bn (拢4.4bn) and additional temporary spending, such as help with energy costs.

The IFAC said there is "little to no justification for further temporary non-core measures".

It said that energy prices are already falling and temporary measures risk adding to inflation which currently stands at 5.8%.

The watchdog has also repeated its criticism of the government鈥檚 intention to breach its rule that core public spending should increase by no more than 5% annually.

The budget plan will see core spending increase by more than 6% in 2024.

The council said the government now plans to repeatedly breach the National Spending Rule every year to 2026 and describes this as "a serious cause for concern".

The Irish economy has recovered strongly since the Covid pandemic.

The employment rate is at a record high and the domestic economy is forecast to grow by more than 3% this year.

The country will also run significant budget surpluses in the coming years as it reaps a corporation tax windfall from multinational companies.

Pressures 'funded sustainably'

Despite the strong economic performance, the governing coalition is struggling in the polls as high housing costs and strained public services mean many people feel they are not sharing in the country鈥檚 prosperity.

The IFAC said it recognises pressures for additional spending and that there is a good case to be made for additional public investment.

But it said that "these pressures should be funded sustainably", suggesting that new spending commitments should be offset with tax increases or spending adjustments elsewhere.

Irish Finance Minister Michael McGrath rejected the IFAC criticism, saying inflation meant the government had to adapt its policy, which included breaching the spending rule.

He added that "on balance" it was the right thing to do.