Jim Power: Challenges for the Government are intensifying ahead of budget
Ministers Paschal Donohoe and Jack Chambers will unveil details of the budget on October 7. Picture: Stephen Collins /Collins Photos
Now that the National Ploughing Championship is out of the way and the Dáil is back in session, the focus of attention will switch firmly to the budget, although the meaningless presidential election will bubble away in the background.
We tend to say every year that the background to the upcoming budget is uncertain and challenging, but the lead in this time is a bit strange.
At one level the economy is growing at a reasonable pace, with employment, exports, and tax revenues all strong.
The overall general government balance also looks healthy on the surface.
The consumer side of the economy is more challenged, as the cost-of-living legacy after the surge in inflation in 2022 is pressurising real incomes and spending power.
The August inflation report highlighted the issue, showing that food prices increased by 5.1% on an annual basis, and they are up by 26% in the past five years. More than anything else, food prices hurt households most.
The pressure on the Government to address spiralling prices of everyday staples with some sort of cost-of-living support will intensify over the next few weeks.
While the overall economic and fiscal situation looks healthy on the surface, the two ministers are getting stringent warnings from bodies such as the Irish Fiscal Advisory Council (Ifac) a couple of weeks ago, and the Central Bank late last week.
The Central Bank points out that the economic outlook is not as positive as it would have been if the US tariff event had not happened, but the tariffs likely to apply are not as bad as might have been feared earlier in the year.
Modified domestic demand (MDD), which is a more accurate reflection of the real economy than the grossly inflated GDP measure, is expected to grow by a healthy 2.9% this year, 2.2% in 2026, and 2.4% in 2027.
Such an outcome would be decent, if not spectacular.
These growth projections are not indicative of an over-heating economy, but the warnings from the Central Bank to rein in current spending are driven more by fears about the sustainability of the tax base due to the very high reliance on corporation tax receipts from a small number of multi-national companies, and the once-off Apple tax receipts; and the fact that current spending is consistently over-shooting targets.
The monetary authority is warning that the underlying general government deficit (when Apple taxes and other transitory corporation tax receipts are excluded), is projected at 3.3% of modified national income (GNI), this year, and 3.7% by 2027.
It advises strongly that the Government needs to control net government expenditure and broaden the tax base, while at the same time investing in critical infrastructure such as water, energy, transport, and housing.
This is all very sensible advice that many of us have been repeating for some time, but of course the fact is that those of us on the sidelines do not have to pander to a sometimes cranky electorate.
Political realities dwarf economic sense.
The Central Bank of course touched on the housing crisis and predicted 32,500 residential completions this year, 36,000 in 2026, and 40,000 in 2027.
Such residential delivery, while on a rising trajectory, would still be hopelessly inadequate to address demand.
Future supply of residential accommodation is not looking positive.
In the second quarter of 2025, planning permissions were 12.5% lower than the second quarter of 2025, with houses down by 6.4% and apartments down by 21.4%.
In the first half of the year, planning permissions were 7.6% lower than the first half of 2024, with houses down by 2.9% and apartments down by 14.2%.
Of all the data seen in recent times, these should be of greatest concern and clearly indicate the lack of meaningful progress on what is our biggest economic and social challenge.
