Risk of the economy overheating will be factored into Minister for Finance Paschal Donohoe’s budget calculations as the Government finalises its tax and spending package before the election.
Sources said the two extreme positions outlined by the Irish Fiscal Advisory Council in a report this week will inform Mr Donohoe’s budget planning. The council warned of an overheating economy to the risk of a no-deal Brexit.
Publication of the council’s latest report on Monday, which described the Government’s medium-term spending plans as “not credible”, led to sharp exchanges between Ministers and in particular their Fianna Fáil counterparts.
Fianna Fáil finance spokesman Michael McGrath said Mr Donohoe and his colleagues must heed the council warnings.
“It is not the first time that the fiscal advisory council have been strongly critical of the Government’s budgetary policy and their management of the public finances,” he said. He added that the council’s criticisms had become more “trenchant”.
The Cork South Central TD – who will negotiate the final budget of the confidence and supply deal with Mr Donohoe – said the economy has had a good run but is now slowing down, adding that cautious policies are now needed. Fianna Fáil public expenditure spokesman Barry Cowenreferred to the report as “stinging” and “damning”.
However Fine Gael responded by mounting several robust political attacks on Fianna Fáil. And the weekly pre-Cabinet meeting of party Ministers heard a discussion on how to attack Micheál Martin’s party on their own economic record.
“We have been treating Fianna Fáil with kid gloves but the gloves are off now,” said one senior Minister, adding that Fine Gael had perhaps attacked Sinn Féin too much instead of “the real political opponent, Fianna Fáil”.
Mr Donohoe said “it is worth emphasising that when Fianna Fáil talks about not repeating the mistakes of the past, it is their past they are referring to”.
He is also understood to have told his colleagues privately that Fianna Fáil act like “saints” at budget time but “sinners” the rest of the year round in asking for spending increases.
What about Brexit ripple effect?
Mr Donohoe is finalising the summer economic statement which will outline how much money he will have to spend in the October budget, the last before a general election.
It is expected the Dublin Central TD will outline several potential scenarios, such as a no-deal Brexit and their effect on how much money will be available to spend in the statement.
“The Government will eventually have to choose one of the scenarios under which to frame the budget, but will not do so until there is greater clarity on Brexit,” said Mr Donohoe.
“I am on one hand facing the advice that the economy might be overheating and on the other hand we face the challenge of an exceptional economic shock in the same year and that is why when I get to the summer economic statement I am going to outline the different scenarios the Government may have to respond back to and what will be the safest way of dealing with those issues,” he added.
Government sources said the risk of the economy overheating, and the effect that will have on the budget, will be taken into account in the scenarios to be outlined in the statement.