The State’s fiscal watchdog has issued a stark warning to the Government about its management of the public finances with less than a month to go before the last budget ahead of the general election.
The Irish Fiscal Advisory Council (IFAC) has warned that ministers are “needlessly” adding pressure to the economy by repeatedly breaking a rule of limiting spending growth to 5%.
IFAC issued its pre-budget statement this morning and criticised the Government for spending too much of windfall corporation tax generated by mulitnationals.
The State has set up two funds to save half of those windfall gains but IFAC said all of the money should be set aside.
It also said the coalition was not keeping to its spending commitments which it made on budget day.
This was due to overruns and items which are not included in the expenditure commitments.
The budget for the Department of Health was “set below the costs of delivering the same services but for a larger population and with higher prices,” it said.
IFAC said several items were being left out of the Government’s forecasts although the Cabinet agreed to fund them every year.
It added that these included: “The payment of the Christmas Bonus – something that the Government continuously pays out, but never budgets for.”
Excessive spending by ministers adding to inflation – IFAC
The council said that excessive spending by ministers have added to inflation and costs for Irish households.
It said work by the Central Bank suggested that by not keeping with the spending rule consumer prices would rise by 1.9% by 2025.
“This adds about €1,000 to a typical household’s yearly outgoings and makes it harder for people to afford everyday essentials,” it said.
It was also critical of the Government’s handling of taxes paid by multinationals which was frequently generated by profits from abroad.
These taxes were allowing the Government run large surpluses, it said.
However, the tax receipts are “incredibly concentrated” as only three multinationals paid 43% of the tax in 2022.
IFAC said without these windfall tax receipts the country would be running a deficit which would require €3,600 in taxes increases per worker to close the gap in the public finances.
The Chairperson of the Irish Fiscal Advisory Council has warned the Government could push domestic prices up if it breaches its own spending rules in the upcoming budget.
Seamus Coffey said inflation has fallen but much of this was due to external factors and price pressures were continuing to build domestically.
This can be seen in areas such as housing, hospitality and rent, he said.
Speaking on Morning Ireland, Seamus Coffey pointed out that Central Bank research has found additional spending was adding to inflation and costing the average household €1,000 annually.
Mr Coffey acknowledged that there are some areas where additional services should be provided, including health and housing.
However if the economy does not have the capacity to produce more, then additional demand will push up prices, he added.
Article Source – Government warned by IFAC over management of public finances – RTE
