Government accused of ‘gaming’ Budget rules to hide spend

In an excoriating report out today, the Irish Fiscal Advisory Council (IFAC) says the Government has “ignored” spending overruns in health, “blurred” the lines between permanent and one-off measures and failed to target cost-of-living supports to those who need them most.

Spending too much when prices are already high is bad value for money, the report says, and will add fuel to inflation, pushing up prices by 0.7pc next year and almost 2pc over two years.

The report accuses the Government of using “fiscal gimmickry to flatter its numbers” – essentially understating what it will cost to run the country over the next three years.

As a result, the report estimates an additional €1.4bn will be needed this year, rising to almost €4bn next year and just under €9bn by 2026 to pay for things like the health service, a new public sector pay deal, the National Children’s Hospital, Christmas bonuses and pension auto-enrolment.

Spending on refugees, public transport fare reductions and mortgage interest relief – labelled as one-off or “non-core” measures in 2024 – are also likely to last longer than the Government has budgeted for, IFAC said, and should be labelled as core spending.

“There was a lot of what we refer to in the report as ‘fiscal gimmickry’ and just basic poor budgeting, especially for health,” said IFAC’s acting chair, Professor Michael McMahon.

“Several items in Budget 2024 were labelled as non-core or temporary, but look highly persistent and likely, therefore, to go beyond 2024.

“The decision was to try and do everything now and, particularly in a tight labour market, in an overheating economy, that is a sort of a poor choice.

“It’s the absence of choice-making that we’re so particularly critical of here,” Prof McMahon said. “It’s not denying that there are households out there that need support. It’s not denying that Ireland has infrastructure needs. But the balance of how you do those things, and when you do those things, and how you finance those things, does require tough choices.”

IFAC’s annual fiscal assessment report – which has been part of the budget-making process for over a decade now – accuses the departments of public expenditure and finance of trying to skirt their own spending rule by redefining billions of euros as one-off or “non-core” spending.

It is the most critical report the IFAC has ever written and amounts to a strong condemnation of the Government’s entire approach – particularly tax cuts and non-core spending hikes, but also much-needed investment in housing – bar two new funds created to bank excess corporation tax receipts.

In fact, there was good news on corporation tax receipts, with the report saying the windfall may not be over and predicting the tax take could grow in the coming years.

But the report concludes that the budget amounts to a large stimulus at the wrong time, with the €12bn package coming in at triple the size of the average pre-Covid budget.

It is also €8bn above where it would be had the Government stuck to a spending rule it introduced in 2021, which Professor McMahon said could lead to mistrust by financial markets.

“We saw it in the UK most recently, in September 2022. If you lose the credibility of your fiscal framework, the costs can be quick and immense, and this is not something that we would want.”

The Government is not bound to take IFAC’s advice. The Finance Bill, which gives legal effect to the budget, was tabled back in October and is currently before the Seanad.