Latest news with #IrishFiscalAdvisoryCouncil
Irish Post
a day ago
- Business
- Irish Post
IFAC criticises Ireland's budget plans
IRELAND'S budget plans have drawn criticism from the Irish Fiscal Advisory Council (IFAC), which says the government is risking economic instability by ignoring basic principles of sound fiscal policy. In its assessment of the newly released Summer Economic Statement (SES), the independent watchdog warned that the government's intention to reduce the size of the 2026 budget package if global trade conditions deteriorate is a serious misstep. IFAC argues this approach runs counter to standard economic advice, which calls for countercyclical policy: increasing support when the economy is weak and scaling back when it is strong. 'This is exactly the opposite of standard economic advice,' the Council said, warning that the government's strategy could leave the public finances dangerously exposed. The criticism has been echoed by Barra Roantree, assistant professor of economics at Trinity College Dublin, who compared the current strategy to the fiscally reckless policies of the early 2000s. 'Committing to ramp up current expenditure if the good times continue, but row back if things get worse, is precisely the sort of pro-cyclical policy that the current minister for finance has himself said we should avoid,' he said. Roantree warned that this policy risks stoking inflation and could leave Ireland vulnerable to sudden declines in corporation tax receipts. If that happens, the government may be forced to abandon capital investment projects, even if they are already promised. Originally, the government planned to increase spending by €3bn in 2025. That figure has now been revised up by €3.3bn, bringing total expenditure to €108.7bn. But IFAC says that even this may underestimate how much the state will actually spend. Based on spending patterns from the first half of the year, the Council believes current expenditure could end up around €1bn higher than reported. The Council also warned that this year's overspending is likely to spill into 2026. 'This all points to poor planning and budgeting,' it said. Finance Minister Paschal Donohoe has also announced a €1.5bn tax package for the upcoming budget, including a controversial proposal to cut the VAT rate for the hospitality sector from 13.5% to 9%. Roantree described the cut as 'an expensive and economically illiterate policy' that will limit the government's flexibility going forward. Despite a strong economy, the government is forecasting a deficit of nearly €11bn next year, which equates to 3.2% of Gross National Income (GNI) once windfall corporation tax revenues are taken out. IFAC has repeatedly criticised the lack of a long-term fiscal framework and says the government still hasn't defined a sustainable pace of net spending growth. One of the few areas where the Council was more positive was the National Development Plan, which it said has 'ambitious targets' that, if executed properly, could help address Ireland's infrastructure deficits. Of the 88 large-scale projects originally scheduled for completion between 2020 and 2025, just 77 are now expected to finish on time. See More: Economy, IFAC, Infrastructure, NDP, SES
Extra.ie
a day ago
- Business
- Extra.ie
State spending watchdog hits out at 'poor budgeting' by Government
The State's spending watchdog has accused the Government of 'poor planning and budgeting' in its spending plans. The Irish Fiscal Advisory Council (IFAC) has repeatedly warned about the dangers of relying on windfalls from large amounts of corporation tax. On Tuesday, Minister for Finance Paschal Donohoe unveiled the Summer Economic Statement (SES), which sets out €9.4billion in spending plans for Budget 2026. On Tuesday, Minister for Finance Paschal Donohoe unveiled the Summer Economic Statement (SES), which sets out €9.4billion in spending plans for Budget 2026. Pic: Leah Farrell/ The IFAC, which was established after the financial crisis to monitor Government budgetary planning, yesterday released its analysis of the SES. It shows that despite the economy performing well, the country would have a budget deficit of almost €11billion if windfall corporation tax receipts were excluded. The SES pledged a total budgetary package of €9.4billion, an increase of €1.1billion from last year's Budget. Some €1.5billion is being committed to tax cuts, with about €1billion of this being spent on reducing the VAT rate for the hospitality sector. Pic: Shutterstock Some €1.5billion is being committed to tax cuts, with about €1billion of this being spent on reducing the VAT rate for the hospitality sector. The remaining €7.9billion will be spent on increases in spending, up 7.3% on last year. The projections are based on the unlikely scenario of no tariffs being imposed following the conclusion of negotiations between the EU and the US in the coming weeks. The SES said that if there is a 'deterioration in the tariff landscape', the Government will 'recalibrate its fiscal strategy'. But the IFAC said that this runs contrary to 'standard economic advice' against reducing the level of spending. It wrote: 'The SES states that if there is a deterioration in the tariff landscape, the Budget 2026 package would be smaller. This is exactly the opposite of standard economic advice. 'Countercyclical policy means giving more support when the economy is weak and less when it is strong.' The IFAC, which is chaired by economist Professor Séamus Coffey, wrote that overspends were 'inevitable' and estimated that spending would increase by €1billion more than planned for in the SES. The watchdog's analysis shows that spending is set to double between 2025 and 2026 and that it expected the figures outlined to increase. 'Budget 2025 had planned a €3billion increase in spending,' it said. 'Yesterday [Tuesday], this was revised up by €3.3billion, meaning the actual 2025 increase will be more than double the original plan. Based on spending data for the first six months of the year, this upward revision is likely insufficient. Analysis by the council suggests current spending is likely to be around €1billion higher than the SES figures.' The IFAC predicts 'this year's spending overrun is likely to carry into next year' and that this needs to be accounted for by the Government to avoid budgetary overruns. 'If this is not acknowledged before Budget Day, further spending overruns next year are almost inevitable,' the report said. The IFAC wrote bluntly that 'this all points to poor planning and budgeting'. The body also criticised the Government for being too 'short-term' in its economic outlook. 'The Government has yet to outline a fiscal framework. It has not set a limit for what it sees as a sustainable pace of net spending growth,' the report stated. The spending watchdog called on the Government to publish a medium-term fiscal-structural plan, which it committed to doing alongside the SES in the Programme for Government.
RTÉ News
2 days ago
- Business
- RTÉ News
IFAC accuses Govt of 'poor planning and budgeting'
The State's fiscal watchdog has accused the Government of "poor planning and budgeting" following the release of yesterday's Summer Economic Statement. The Irish Fiscal Advisory Council said: "Budget 2025 had planned a €3bn increase in spending. Yesterday, this was revised up by €3.3bn, meaning the actual 2025 increase will be more than double the original plan." It added that current spending this year is likely to be €1bn higher than stated in the Summer Economic Statement. It said when volatile windfall corporation tax paid by multinationals were excluded from the figures the Government was running a deficit of almost €11bn next year. The Irish Fiscal Advisory Council also criticised the Government for stating that it would have a smaller budget package if the economic environment deteriorated because of the trade war between the US and EU. It said this approach was the "exactly the opposite of standard economic advice." It added: "Countercyclical policy means giving more support when the economy is weak and less when it is strong." It said that the government's budgetary plans were focused on the short term. It added: "The Government has yet to outline a fiscal framework. It has not set a limit for what it sees as a sustainable pace of net spending growth." However, the Irish Fiscal Advisory Council was more positive about the review of the National Development Plan which it said had "ambitious targets" for the coming years. It said if the plan was well executed it could help address shortfalls in Ireland's infrastructure. But it added the last National Development Plan "struggled with timely delivery". It said: "Of the 88 large projects we can track that were scheduled for completion between 2020 and 2025, only 77 are now expected to be finished within that timeframe."
Irish Times
4 days ago
- Business
- Irish Times
Paranormal Ireland: a rich country reliant on ghostly apparitions of magic money
Contemporary Ireland is best thought of as a paranormal state. The paranormal is that which is 'analogous or parallel to, but separate from or going beyond' known reality. The principle site of paranormal activity in Ireland is not some haunted castle or spooky seance. It is the Government coffers. We have a fiscal policy and a parafiscal one – a ghostly exchequer parallel to the known reality of the Irish economy. By the end of this year, the State will have taken in roughly €186 billion in corporation taxes over the last decade. In many ways, the story of contemporary Ireland is encapsulated in the astonishing growth in the share of overall tax revenue contributed by corporation tax. In 1984, it was just 4 per cent. By 2014, it had almost tripled to 11 per cent. It has by now almost tripled again to 29 per cent. Most of this dizzying increase is what official bodies call 'excess'. 'In other words,' as the Irish Fiscal Advisory Council puts it, 'it cannot be explained by underlying domestic activity.' Or, in the Central Bank 's formulation, it is 'disconnected from actual economic activity in Ireland'. It is paranormal and, I think, unprecedented. Has any government in the history of the world ever been so dependent on the excessive and the inexplicable? Has any state ever driven such a great distance on the fumes of airy superfluity? To get a sense of the scale of this ectoplasmic largesse, we can ask: how much money would the State have taken in last year if the share of its revenues accounted for by corporation tax were the same as 2014? The answer would be €11.9 billion. And what did the State actually take in corporation tax in 2024? That answer is €28 billion . READ MORE So we're looking at €16 billion of last year's revenue that was accounted for simply by the magical growth in the proportional contribution of corporation tax paid by a tiny number of American multinationals. To put that in context, €16 billion is the combined budget of the departments of Education and Transport this year. Little Ireland received more tax revenue from American corporations than any other country outside the US At one level, of course, this windfall is not mysterious. The 'excess' of magic money is a byproduct of the machinations of around 10 gigantic US-based corporations. They have transferred their intangible assets – patents, trademarks, brands and software licences – from overly obvious offshore tax havens to the more respectable but still very generous environs of Ireland. The Irishness of this intellectual property (IP) is a legal fiction. We might call it IPP: Intellectual Plastic Paddy. But IPP allows the corporations to massively inflate the profits they declare here and the State to claim 12.5 per cent (now rising to 15 per cent) of those profits. It might be reassuring to imagine that all this is the result of a cunning plan of Irish governments. But it isn't. The State was red in tooth and claw in its fight to stop the modest reforms to global tax regimes that resulted in the decisions of the multinationals to onshore their IP out of the tax havens and into Ireland. It went along with those reforms grudgingly and with bad grace when it had no real choice. This is the irony: the State has been enriched against its will, dragged kicking and screaming into Aladdin's cave. Nonetheless, in 2022-2023, the latest year for which we have figures from the US, little Ireland received more tax revenue from American corporations than any other country outside the US. We got twice as much as China, three times as much as Germany, as much as India and Canada put together. It is this magic fountain that waters our parafiscal exchequer. The State essentially runs two budgets. One, based on actual economic activity in Ireland, is consistently in deficit. But the other, inflated by the IPP bonanza, is in flamboyantly extravagant surplus. The first is masked by the second. The paranormal occludes the normal. So what? If we leave aside the morality – and by God do we ever leave aside the morality – it's free money. The luck of the Irish has turned from a sick joke into a daily reality. Why not just enjoy it? The problem, though, is that paranormal activity is bewildering. It makes it hard to decide what is and is not real. And this is the paralysing condition that besets the State. It cannot make up its collective mind whether the 'excess' is a conjuring trick or hard fact. Is it just the way Ireland is and will be for the foreseeable future? Or is it a little Eden from which, any day now, we will be expelled and thenceforth have to earn our bread by the sweat of our brows? Unearned wealth – and let's be clear that this is what most of this 'excess' corporation tax is – leads to laziness These dual possibilities are the headlights in which the State is caught and frozen. It can neither believe its luck nor discount it. This is the underlying reason for the almost inexplicable inability of a very rich country to reach European standards of infrastructure and social services. Because we don't think the bonanza is real and sustainable, we can't plan to spend it sustainably. Yet because we have this embarrassment of riches, we don't have to think about how we raise and spend money in the normal, tangible Irish economy. Hence, successive governments adamantly refuse to broaden the tax base – why bother taking the risk of upsetting any powerful lobby when you can just watch the billions roll into the parafiscal treasury? Why, indeed, make any real choices at all? Unearned wealth – and let's be clear that this is what most of this 'excess' corporation tax is – leads to laziness. The hard work of reform, of innovation, of articulating priorities and then delivering them, can be shirked. The State needs to pick a side: either decide that the crock of gold will keep renewing itself and invest accordingly, or conclude that leprechaun economics has had its day. Either trust in the paranormal or make the normal fit for purpose.
Irish Independent
05-07-2025
- Business
- Irish Independent
Minister wants to persuade EU to avoid ‘emission fines', but experts say threat of €26bn penalty is real
He said if financial penalties were proposed for member states for breaching emissions targets, each should be directed to spend the money on renewable energy or related measures in their own country. He does not accept estimates that Ireland may be liable to pay as much €26bn in costs, however, insisting this was 'pure speculation'. The colossal figure is at the upper end of estimates jointly published earlier this year by the Irish Fiscal Advisory Council and Climate Change Advisory Council. Ireland has already had to buy tens of millions of euro worth of credits from other states to make up for missing 2020 targets, but the advisory bodies warned that the cost would escalate rapidly by 2030 if the country does not make dramatic emissions cuts. The minister insisted there was no specific mechanism in place in Europe to deal with breaches in 2030. 'There's no formula published and there's no informal formula as to what measures would be taken by the commission in relation to states that do not meet their target so it's just speculative,' he said. 'This is something I have discussed with the commission myself,' he said. 'Should there be financial impositions, I think the better thing to do would be to instruct and direct states to invest further in their own climate measures such as renewables.' He said other EU states shared that view, as they were also likely to miss their targets. Figures released yesterday show emissions fell by only 2pc last year – nowhere near the scale needed. Marie Donnelly, chair of the Climate Change Advisory Council, said the reduction was 'disappointing'. 'By delaying investment to deliver these reductions, the Government is increasing the risk and costs required to comply with targets that have already been agreed,' she said. 'It is better to make the investments now for households, communities and businesses, rather than paying large fines in a few years.' Friends of the Earth spokesman Seán McLoughlin said: 'A 2pc reduction, when we need to be making deep emissions cuts year-on-year, shows that the Government is still stuck in climate go-slow mode. We are falling further and further behind on our climate commitments, while the world continues to warm at terrifying speed.' Environmental NGO An Taisce said: 'The emissions inventories now published signal yet another year of climate action drift by the Irish State, and an ongoing failure of policy to address the climate emergency.' Social Democrats climate spokesperson Jennifer Whitmore said Mr O'Brien's attitude to potential fines was 'blasé'. 'The Government is delusional if it does not accept that severe financial consequences are now a very real threat,' she said.
