That’s because the Government, in a spending and tax blueprint published as recently as April, did not take account of the costs on the public purse from an ageing and growing population or inflation, according to the fiscal watchdog.
Under its so-called Stability Programme Update, the Government set down its spending plans for the European Commission in April.
That document forecast current and capital spending would total €59.5bn in 2021.
The watchdog said the figure is €6bn short of what is required and that the medium-term projections by the Department of Finance “do not present an informative picture of the public finances after 2016”.
In its latest Fiscal Assessment Report, IFAC said the forecasts “lack necessary detail” and that “the jury is still out” on Ireland’s true “fiscal space” as a result.
“The expenditure forecasts do not provide for any increase in the cost of providing the current level of public services in line with expected inflation,” said the watchdog.
“This profile for Government spending underestimates future expenditure pressures, given the likelihood that expenditure will need to rise in line with inflation, unless real expenditure cuts are implemented,” it said.
Professor John McHale, chair of the IFAC, told reporters that the setting up of some sort of “rainy day fund” is “a good concept”.
IFAC said that running larger budget surpluses would be “appropriate” should the economy show signs of overheating.
Some politicians have called for the setting aside of a specific fund to cushion the economy from future shocks.
IFAC wants the Government to explain why it hasn’t increased its short-term forecasts for the exchequer’s tax receipts — in particular, from corporate taxes — between last October’s budget and April’s Stability Programme Update.
Mr McHale said that’s because corporate tax receipts had risen significantly in the final three months of last year.
Though not predicting any sharp fall in receipts anytime soon, IFAC said the exchequer remains vulnerable to the volatile nature of corporate tax receipts.
While accounting for only 6% of total annual tax revenues, half of the corporate receipts are collected from a narrow base — 10 of the country’s largest companies. Such bounty could fall in the future.
IFAC said that the Government overall presented fairly “conservative” projections in April to the Commission. However, the Government could marginally miss its commitment to the EU to reduce its so-called structural budget deficit this year.
“The projections in [the] Stability Programme Update 2016 indicate that the projected fall in the structural budget deficit in 2016 is insufficient to meet the requirements of the fiscal rules,” the watchdog said.
Until the Government provides more detail on the costs of its proposed policies, “it is unclear how the Government’s plans [in the Programme for Government] are consistent with meeting the fiscal rules and reducing the deficit and debt.”
IFAC also supported the Department of Finance’s preliminary estimate of €900m of fiscal space for 2017 under EU rules, in addition to a similar amount already allocated to meet existing spending commitments.