Irish budget: Spending plans could overheat economy says watchdog

Ireland’s budget watchdog has criticised government spending plans, warning that they risk overheating the economy.

Earlier this week the Republic’s finance minister outlined plans to increase public spending by almost 7% in October’s pre-election budget.

That breaks the government’s own rule that spending should rise by no more than 5% annually.

The Fiscal Advisory Council (IFAC) said “the economy does not need more money pumped into it from Budget 2025”.

It points to recent work by Ireland’s Central Bank which suggests that previous breaches of the spending rule in the last two years means prices are 1% higher than they would have been otherwise.

IFAC adds that it is open for the government to increase spending by more than 5% so long as it offsets that with tax increases.

However, the budget plan is proposing €1.4bn (£1.2bn) of tax cuts.

When he revealed his plans on Tuesday, Finance Minister Jack Chambers said part of the reason for breaching the rule was that public services need more money to cope with a rapidly rising population.

He said: “There remains the continuing need to improve public services and infrastructure, particularly in the context of a growing population and economy.

“The government has adapted its fiscal strategy to take account of this.”

The next Irish general election must take place before the end of March although there is speculation it could be held in the autumn.

The governing coalition performed better than expected in June’s local and European elections while the main opposition party, Sinn Fein, has seen some weakening of support in recent opinion polls.