Budget 2024: Leo Varadkar rejects watchdog criticism of plan to breach 5% spending rule

The Taoiseach, Leo Varadkar, has defended the Government’s approach to the budget following a critical assessment by a fiscal watchdog.

The Irish Fiscal Advisory Council (Ifac) has warned Ministers not to “repeat past mistakes” as it argued that a large budgetary package is not needed this year.

The council has expressed concern at the plan to again breach the Government’s own rule not to increase core spending by more than 5 per cent. Ifac said the economy is in an “unusually strong position” and should not be stimulated further through measures in Budget 2024.

The Government has set its budgetary envelope at €6.4 billion, with additional public spending measures worth €5.2 billion and taxation changes costing an extra €1.1 billion.

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Ministers are planning a 6.1 per cent increase in core spending, which represents another breach of its 5 per cent spending rule set out in the Programme for Government. They have justified the move in the context of continued high inflation levels.

Ifac said it has concerns over the manner in which the Government changed its plans in the Summer Economic Statement, revealed in July, to an approach that would see the spending rule breached every year until 2026.

Mr Varadkar rejected the assertion that Ministers were set to repeat past mistakes, telling reporters as he arrived for a Cabinet meeting in Co Wicklow: “We’re not going to do that.”

He added: “Ifac is a really important body. I was a member of the government that established it back in 2011 or 2012 and respect that they have a job to do. I do respect their advice, but I don’t agree with it on this occasion.

“The 5 per cent spending rule was a rule that was set by government. The thinking behind it at the time was 2 per cent to cover inflation and then 3 per cent to make things better, two plus three is five,” the Taoiseach said.

“But things have changed a lot since then. We now have inflation that’s much higher than that. And if we were to stick to that 5 per cent rule, we wouldn’t be able to give pensioners and carers and people with disabilities the increase they need in the budget,” he said.

“We wouldn’t be able to give our hard-working public servants the kind of pay increase that they’re going to need, we wouldn’t be able to keep up with the growing demand for health and education because of a rising population against the backdrop of inflation.

“So that’s why, as a Government, we don’t agree with them on this particular issue.”

Mr Varadkar made clear the Government would be adhering to EU fiscal rules on spending when setting the budget.

Mr Varadkar added: “One thing we will definitely do in the budget – there will be a very substantial surplus, and we will use that surplus to pay down the debt and also to set aside for future demands.

“So far from fuelling the economy and pouring money into the economy, we are actually going to take billions and billions out of the economy, use it to reduce debt and set it aside for the future and I think that’s the right thing to do.”

Social Democrats finance spokeswoman Róisín Shortall said that she believed that Budget 2024 risks “contributing to inflation” and it was important that Government “carefully targets its measures at people who are struggling the most.”

“Minister McGrath has earmarked around €1 billion for tax cuts, but Fine Gael in particular seems fixated on using that to index tax bands, something which, on its own would be of no benefit to anyone earning less than €40,000,” Ms Shortall said.

“It is important that working people on very low incomes, and those reliant on social welfare, get increases that allow them to at least keep up with inflation.”

She added: “Government cannot ignore the advice it has been receiving around targeting. The ESRI warned only yesterday that “untargeted tax cuts or increases in spending risks stoking further inflation”. – Additional reporting PA