Fiscal Council fears Government not taking budgetary planning 'seriously'

Minister for Finance Paschal Donohoe (left) and Minister for Public Expenditure Jack Chambers at RTÉ after the budget speech. The Government may not be taking forward planning "seriously", the Fiscal Council has warned in its preliminary analysis of Budget 2026. Picture: Brian Lawless/PA

The Government is not taking forward planning "seriously", with spending growing much faster than the sustainable growth of the economy, the Fiscal Council has warned in its preliminary analysis of Budget 2026.

The Fiscal Council is the independent statutory body that acts as Ireland’s budgetary watchdog. It comprises a five-member part-time Council appointed by the Minister for Finance and a full-time staff or "secretariat” that supports its work.

In its preliminary assessment of finance minister Paschal Donohue's budget outlined on Tuesday, the council criticised the lack of forward planning, saying there is "no excuse for a short forecast horizon".

"Budgetary forecasts in Budget 2026 only cover 2026, unlike recent budgets. Good planning and budgeting requires forecasts that go more than 15 months ahead. The Council has consistently stressed the need for budgetary forecasts that go at least five years ahead," the council said.

"The Government has yet to submit an updated Medium-Term Plan to the European Commission. This five-year plan, which sets out an expenditure path, was due to be submitted over the summer but this is yet to happen. This suggests the process is not being taken seriously."

The council said that with the economy performing well, standard economic advice would suggest budgetary policy should provide less support but said the package announced on Tuesday amounts to at least €7.4bn additional spending when adjusted for tax measures. "This is larger than the package of permanent measures introduced in recent budgets," the council said.

"While the Government is running a surplus, this is driven by the extraordinary amount of corporation tax that is being collected. Without these revenues, the Government’s own figures show a deficit of almost €14bn could emerge next year, a deterioration of €6.2bn.

"The budget outlined €6.1bn for current spending increases, €2bn for capital spending increases, and €1.3bn of tax changes. Unlike recent budgets, all of the measures announced are permanent, and will recur every year."

The Fiscal Council said even after accounting for inflation, spending is growing at a rapid pace, over 9% in 2025 and predicted at 5.3% in 2026. "This is much faster than the sustainable growth rate of the Irish economy," the council statement said.

Meanwhile the Parliamentary Budget Office, in its flash impact analysis, said on average, low, middle, and high-income households face average income losses from Budget 2026. The Parliamentary Budget Office is an independent and specialist unit which advises the Oireachtas.  

It said the withdrawal of cost-of-living measures is forecast to "increase income poverty rates, rising from 11.7% in 2024 to 13.2% in 2025 and 12.6% in 2026".

It said the freeze on income tax bands and credits will affect middle and high-income households, increasing the average tax rate from 22.5% in 2025 to 23.1% in 2026. But it said after accounting for inflation, earnings have outpaced welfare rate growth over the past decade.