Ifac warns ‘permanent spending’ increases will limit Government’s financial options

The Irish Fiscal Advisory Council (Ifac) has warned that €5.4 billion of permanent spending increases announced in Budget 2021 would limit the Government's budgetary options in the future.

The budgetary watchdog has been at loggerheads with Government over its future spending plans, suggesting its financial projections “ lack credibility”.

Launching a new interactive tool – the fiscal-space calculator – which lets users explore alternative budgetary options, the council warned that fiscal space in the years ahead would be much more limited than in recent years.

“Even as the temporary costs of the Covid-19 crisis fade away, the €5.4 billion of permanent spending increases in Budget 2021 has committed much of the growth in revenue to 2025,” it said.

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“The cost of maintaining existing public services and benefits and current investment plans... would use up much of the remaining space,” it said.

Ifac said to fund new policy initiatives, such as a bigger housing budget, choices would need to be made between raising taxes or reducing other areas of spending “to keep debt on a prudent path”.

It said the council’s new budgetary tool lets users look at different budget packages that achieve this.

"While generous supports have been warranted during the Covid-19 crisis, fiscal space will be limited in the years ahead," said Ifac chairman Sebastian Barnes said.

“There are significant pressures to spend more on health, housing, pensions and climate change. The council has highlighted the need for the Government to set out how it will fund higher spending and how to prioritise the different policy objectives,” Mr Barnes said.

Budget surplus

Tánaiste Leo Varadkar criticised the council last week, saying while it was right on some things, it got others wrong.

In particular, he claimed Ifac had failed to predict that the Government would achieve a budget surplus back in 2018 and 2019, and that its warnings about the economy overheating prior to Covid had been wrong.

The council, however, hit back, saying Mr Varadkar’s claim was “unfounded” and that its role was “to assess official forecasts and highlight risks” and not to make fiscal forecasts.

It also noted that the Government’s surpluses were driven “by unexpected corporation tax receipts”.