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
