In spring 2007, a year before the bubble burst and the country was thrown into a disastrous recession, the ESRI warned of the danger of a collapse in the construction sector, and a resulting big economic shock.
This followed on from earlier warnings of overheating. The risk of a collapse was echoed forcefully in an RTÉ documentary from George Lee.
However, the government and the wider political system was deaf to such warnings. The opposition failed to show concern about the dangerous path of economic policy.
The 2007 election was fought on the basis of who would most improve services and cut taxes. In losing that election the opposition dodged a bullet – it was the Fianna Fáil government who had to first deal with the consequences of the economic collapse that reckless economic policy had delivered.
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This time round the response of the political system is similar to 2007. A chorus of warnings from the ESRI, the Central Bank, the Irish Fiscal Advisory Council and the Nevin Economic Research Institute on the profligacy of fiscal policy all appear to be falling on deaf ears.
Most of the Opposition are, if anything, promoting even more expansionary policies, rather than calling for a tightening of the fiscal belt.
As far as I can see, the only exception has been Labour’s Ged Nash, who asked the Minister for Finance to ensure that Budget 2026 broadens the tax base rather than hollows it out.
Labour may be remembering previous occasions they have been in government and had to clean up after disastrous fiscal policies of their predecessors.
In reply, Paschal Donohoe commented he had not expected a question about the Government spending too much money. We will see how the Government follows up on this in the budget on Tuesday.
[ Budget 2026: No changes to personal income tax plannedOpens in new window ]
A prudent approach to economic policy may not be popular, but it is wise.
Our economy – and our tax base – is very exposed to a serious shock affecting the world economy. Our banks are in better shape than in 2008, thanks to strong Central Bank oversight, but as an exporting nation we would still take a hit.
Over the past year the Government has pumped money into an economy that is at capacity. While it may be unusual to say too many new jobs are being created, the reality is that our red-hot economy is pulling in workers from elsewhere, including returned emigrants, putting extra pressure on the housing market and driving up rents and prices.
There’s a direct link between overstimulating the economy and higher house prices.
We hear a lot in the media about a cost-of-living crisis. This is seriously at odds with the facts. There was a surge in inflation in 2022 and 2023 because of the war in Ukraine and the after-effects of Covid, when prices rose by an average of 7 per cent a year.
As a result, household living standards fell in both years. However, last year and this, the European Central Bank (ECB) has returned the rate of inflation to 2 per cent.
Wages and welfare rates have risen more rapidly than prices, so that households have seen living standards rise significantly in 2024 and 2025.
While food prices are up 6 per cent on the end of 2023, this is primarily due to higher prices for beef, dairy produce and chocolate. As the Central Bank highlighted, farmers are significant beneficiaries of these higher prices (chocolate excepted).
Most households, including those on low incomes, spend less than 15 per cent of their budget on food, so that higher wages and welfare payments mean they are better off than last year.
It will be appropriate for the Government to overindex welfare payments (including in-work benefits) in the budget to protect those on very low incomes.
However, for most households, rising wages will more than compensate for inflation. The Government should resist the temptation to subsidise the rest of the population.
Without overheating the economy, it’s important to leave headroom for necessary increases in public spending.
[ After a decade of budgets are we all better off?Opens in new window ]
The State faces long-term challenges of an ageing population, adapting to climate change, and a big infrastructure deficit at a time of population growth.
Our tax base is vulnerable - especially corporation tax and income taxes from high-paid executives - to the fortunes of a few multinationals.
The Commission on Taxation and Welfare has said that we need to find additional revenue to fund the extra public spending we will inevitably need for more pensioners, more hospitalisations, for retrofitting and for flood defences.
It’s not the time to cut taxes; modest indexation is all that should happen.
