Next month’s budget announcement should be packaged as a five-year fiscal roadmap for the country and include a “sizeable” multi-year stimulus package to support economic recovery, budgetary watchdog the Irish Fiscal Advisory Council (Ifac) has said.
As part of its pre-budget statement, IFAC has also urged the Government to include contingency measures in case of a no-deal Brexit and/or a further deterioration in economic conditions due to the Covid-19 pandemic.
The council has refrained from putting a figure on how much it thinks will be necessary beyond saying “a sizeable, large-scale, package is needed”.
It wants the Government to enhance the rainy-day fund and clearly set out its spending and taxation plans for the next five years.
Ifac remains quite positive about the Irish economy, even lowering its earlier timeframe forecasts for full recovery — from a worst-case scenario of three and a half years down to closer to two years.
However, it said uncertainty remains “exceptionally high”, with Covid-19 and Brexit the main risks.
A no-deal Brexit would hurt Irish growth and further widespread Covid-19 restrictions could also negatively affect the economy, it said.
Ifac is also concerned about the over-reliance on corporation tax revenue.
It said high national debt levels, climate change pressures and an ageing population — bringing with it increases in health and pension costs — also pose economic risks.
It is forecasting for a national budget deficit of between €24bn and €30bn this year, despite the Government improving its own outlook for this year and next, but said the deficit should narrow as the economy recovers.
Ifac also said Ireland’s debt ratio is likely to remain “very high” but that low borrowing rates will continue to help the country’s debt dynamics.
The council said borrowing rates should remain well below Ireland’s economic growth rate for a long time.
“Budget 2021 should ensure that there is a substantial multi-year stimulus in place for 2021 and beyond to continue targeted support measures and to support demand,” said Ifac chair Sebastian Barnes.
“Given the high uncertainty around Covid-19 and Brexit, putting in place an appropriately-sized contingency would help manage risks,” he said.
Mr Barnes described the current recession as being a “very complex and unusual crisis” and said a mix of support measures and stimulus would be needed into next year.
Existing support measures for businesses and households should continue, Ifac said.
Earlier this week, employers’ group Ibec said it remains hopeful of a strong economic recovery but that a €6bn budgetary package is needed next month in order to boost the economy next year.
The head of the Central Bank, Gabriel Makhlouf, also warned this week that further widespread lockdown measures across the country would have “very serious implications” for the economy.