Government ‘budgeting like there’s no tomorrow’

Despite soaring taxes flowing into the Government’s coffers from US multinationals, the State’s fiscal watchdog says the proportion of the windfall revenues being set aside by the Cabinet is falling.

In a stark warning, the Irish Fiscal Advisory Council says the Government was “budgeting like there’s no tomorrow”.

It says there are no budgetary forecasts beyond 2026 and the Government has yet to submit a revised medium-term fiscal plan to the European Commission.

IFAC says Government needs to move away from year-to-year budgeting.

Moving to multi-annual budgeting would give government agencies more certainty over their future funding, it says. This would aid better planning and delivery of public services.

The Irish Fiscal Advisory Council says the share of corporation tax which is being saved will drop from 32% this year to 15% in 2026.

The council’s chairman Seamus Coffey says the “Government plans to run a smaller surplus next year”.

The watchdog warns that spending is set to grow by over 11% in 2025 which it described as “much faster” than was sustainable.

Watch: Taoiseach says Govt putting ‘substantial funding aside’

It also said that expenditure was rising quicker than tax revenue, leading to an underlying deficit of €7 billion this year and deteriorating to €14 billion next year, when volatile corporation tax receipts are excluded.

The taxes paid by a small number of large US multinationals are seen as a highly unreliable source of revenue but are being used to sustain day-to-day spending.

The watchdog is also highly critical of the Government’s track record on adhering to expenditure limits announced on Budget Day.

The Fiscal Council said: “Spending forecasts have been repeatedly revised up.”

It said expenditure in 2025 will be €12.5 billion more than the €96.6 billion set out in the Budget in 2024.

It said the previous government published limits on growth in spending to 5.1% for this year and 6.5% for next year.

But spending is now expected to be 8.6% and 7.7% respectively.

Watch: Harris says medium-term economic plan ‘number one priority’

In response to the report, Tánaiste Simon Harris said his “number one immediate priority” as Minister for Finance is to produce a medium-term economic plan.

Mr Harris said he intends to have this work completed by the end of the year.

He said there is a need to move beyond “the temptation for short-termism” and “to anchor both our spending and taxation plans for the years ahead in this medium-term framework”.

The Minister for Finance said he held a “really good meeting” with IFAC last week and welcomes the council’s analysis and input.

Meanwhile, Taoiseach Micheál Martin said the Government is putting “substantial funding aside”, adding that the opposition wants the Government to spend “like there’s no tomorrow”.

However, Mr Martin said that the “level of expenditure in the last number of years has been high”.

He said recent spending has come in response to the Covid and energy crises along with the growth in population and tariff issues.

The Taoiseach added that the bulk of future spending is focused on capital expenditure.