Ifac: Government spending plans 'well above' sustainable growth of economy

Net spending is projected to increase by on average 7% annually — the highest in the EU

Chair of Ifac Seamus Coffey: 'The reason we don't have the excess of bumper corporation tax receipts put into the funds is because it's been spent.'

Government planned spending increases over the coming years are “well above” the sustainable growth rate of the economy, the Irish Fiscal Advisory Council (Ifac) has warned, as it called for larger surpluses to be run in order to leave a better fiscal position to address future challenges.

As part of its latest fiscal assessment report, Ifac said Government spending was set to grow over the near term at the fastest rate in Europe, which means relying more on corporation tax receipts.

This will also result in the Government having to eventually borrow money to make the contributions necessary to the two wealth funds — the Future Ireland Fund and the Infrastructure, Climate and Nature Fund.

Ifac chair Seamus Coffey said the key message from the council was the revised medium-term plan as set out in the annual progress report, and also the medium term expenditure plan, “is not an appropriate guide for budgetary policy in Ireland”.

“When we look at it, we see that Ireland has planned the fastest net spending growth across the EU, and this is also faster than sustainable growth of the economy. So our use of resources is beyond the sustainability of the economy to generate them.” 

Mr Coffey said the annual progress reports and medium-term expenditure plans EU countries had submitted to the EU Commission showed between 2025 and 2028, Ireland is expected to increase net spending by 7% on average each year which is "by a distance the highest in the EU”.

"The next is Malta, and that's more than a full percentage point lower.” 

Ifac added it was “well above” the sustainable growth rate of the economy, which is about 5%.

He said Government surpluses were expected to run at €9bn this year and next year, before declining to €6bn in 2028 and to €2bn in 2029, and recovering in 2030.

"The Government should focus on running bigger surpluses,” he said.

As a result of dwindling surpluses over the coming years, Ifac said the Government was going to have to borrow in order to continue to contribute to the two wealth funds.

“This departs from the original purpose of the funds, which was to save these risky corporation tax receipts, rather than spend them,” Ifac said.

"The reason we don't have the excess of bumper corporation tax receipts put into the funds is because it's been spent,” Mr Coffey said.

Ifac also reiterated its concern the Government was becoming too reliant on corporation tax receipts, which are going more and more towards current spending rather than being saved in the two wealth funds.

Between 2026 and 2030, Ifac said for every €6 collected in corporation tax, only €1 would be saved and the other €5 would be spent.

“This leaves the public finances less prepared for known and predictable future pressures, such as an ageing population and climate change,” the council said.

If excess corporation taxes are excluded, IFAC projects the Government would run a deficit of €11bn this year which would grow to €20bn by 2030.

It also raised concern about spending overruns which it said has been a "persistent feature” of budgetary policy in Ireland. It noted that since Budget 2024, overruns have driven €6.8bn of spending increases.

IFAC reiterated the need for the Government to implement its own fiscal rule, and codified in legislation, “because the medium-term plan is not an appropriate guide for budget decisions”.

Mr Coffey said that the EU’s fiscal rules cannot be relied upon because of their reliance on gross domestic product as a metric which is highly distorted in Ireland’s case because of the numerous multinationals with operations here.