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What Ifac’s Government criticism really means

Watchdog’s warnings come ahead of tricky financial budget and possible snap election

IFAC has been heavily critical of Government spending policy. Photograph: Niall Carson/PA Wire

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Cantillon
Thu Jun 6 2024 - 06:00

The Irish Fiscal Advisory Council’s latest missive to Government about the public finances centres on three potential flashpoints.

One, the Government isn’t adequately forecasting the likely increase in spending next year and beyond and, according to the watchdog, using “fiscal gimmickry” to make it look like it is being more adherent to the 5 per cent spending – the Government’s pledge to try to keep the annual hike in spending within a 5 per cent ceiling.

Ifac highlights that there are strong risks of spending overruns this year in the areas of health, children and social protection, while noting “medium-term fiscal challenges remain to be addressed, including the costs of population ageing, climate change and the costs of implementing health reforms”.

The second potential risk area relates to the impact of the Government’s spending plans on the economy, which is already operating at or above capacity. They come with overheating risks, the council warns.

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The third area relates to the concentration risk at the heart of the State’s corporation tax base, which Ifac warns is perhaps worse than we initially thought with just three firms responsible for 43 per cent of receipts in 2022. Income tax is also heavily concentrated, it warns. In other words, it wouldn’t take much to cause a sudden shift in our tax base and our public finances.

“Given the strength of the economy, choices need to be made. This is not a time for the ‘everything now’ approach of cutting taxes, increasing current and capital spending and doing this all at once,” Ifac acting chairman Prof Michael McMahon said.

Ifac’s warnings are nothing new but they come ahead of a tricky financial budget and a possible snap election (it is expected to take place immediately before a general election). The temptation to spend more or cut taxes before going to the electorate will be big.

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