Finance Minister responds to budgetary watchdog's 'fiscal gimmickry’ criticism

The budgetary watchdog said in its latest assessment was that the Government runs the risk of overheating the economy if it continues to put pressure on capacity with large post-covid budgets.

Mr McGrath argued that the income tax reductions “will allow people to keep more of their hard earned money and will support the domestic economy next year”. Pic: Liam McBurney/PA Wire

Finance Minister Michael McGrath contradicted the budgetary watchdog by arguing that the decision to increase capital expenditure in October was the right one.

Irish Fiscal Advisory Council's, or Ifac, key point in its latest assessment was that the Government runs the risk of overheating the economy if it continues to put pressure on capacity with large post-covid budgets.

But Mr McGrath said the decision to increase capital expenditure will go towards alleviating capacity constraints by building “more homes, schools, healthcare facilities, transport infrastructure”.

Mr McGath said he respected the role of Ifac, in providing critique of government policy but added that he will carefully consider the latest report it published where it said recent poor budgeting is “highly concerning”.

The report by Ifac said that current consistent price pressures should have prevented a widespread fiscal stimulus in the last budget and that it expects the Government to breach the 5% spending rule again.

Ifac also said the tax cuts in October’s budget could add to inflation over the coming years by anywhere from 0.5 to 1.8 percentage points.

Mr McGrath argued that the income tax reductions “will allow people to keep more of their hard-earned money and will support the domestic economy next year”.