Ifac warns budget spending splurge could rise household bills by €1000 a year

The Irish Fiscal Advisory Council warns a bumper budget will create 'the illusion of gain' but make cost-of-living crisis worse

Families anxious about high prices of food, housing, and medicine may welcome a giveaway budget but Ifac is warning against 'pumping money into an economy that is already performing strongly'. iStock

The Government’s expected spending splurge in the upcoming Budget 2025 will create “the illusion of a gain” for household finances but will be costly in the long-run, the State’s budgetary watchdog has warned.

The Irish Fiscal Advisory Council (Ifac) said breaches of the Government’s own 5% spending rule will raise consumer prices and add €1,000 to households' yearly outgoings.

Seamus Coffey, the recently-appointed chairman of Ifac, pulled no punches by stating Government overspend is adding to already high levels of demand in the economy, leading to capacity pressures and higher prices. He said:  

Everyone pays when prices are higher. 

However, Mr Coffey signalled that he is anticipating that Finance Minister Jack Chambers will follow the lead of his predecessors by once again breaking the spending rule especially as a general election looms closer.

Ifac was overall optimistic about the performance of the “strong” Irish economy on the condition that the Government does not overheat it with “extra stimulants”.

However, post-pandemic rapid economic growth has created labour market pressures as demand for workers increases, as unemployment remains at record lows. 

This has, in turn, led to capacity constraints which Government spending has exacerbated. 

Real wages are bouncing back due to this demand for staff amid cooling inflation and while some of this is organic, Government pressures are contributing to increases in some areas, the watchdog suggested.

This environment is causing “pressures to rise in the economy”, said Mr Coffey as domestic prices are climbing upwards at a pace that remains higher than at any other time outside of the pre-financial crisis period.

Food services, rent, and medical prices are all driving up overall domestic prices and have been exacerbated by the Government “pumping money into an economy that is already performing strongly”, said Ifac in its pre-budget statement.

Ifac’s comments echo sentiments from other bodies in recent months including the business representative group Ibec, which called for a budget with a long-term focus instead of one filled with one off household measures that may provide short lived relief.

Mr Coffey said there is a merit in providing some cost-of-living measures to households most in need but not for all.

Meanwhile, as Budget 2025 is expected to be a bumper one, further overruns are expected this year due to items left out of Government forecasts. 

This includes the annual payment of the welfare recipients’ Christmas bonus, which the Government continuously pays out, but never budgets for.

Ifac added that further overruns or untargeted cost-of-living supports will drive the budget to near double the size of pre-covid packages.