The Government is trying to introduce a new system of spending control, to avoid the consistent budget overruns of recent years. It remains to be seen if it can succeed.
The first test of the new regime, introduced this year, has emerged with news that the Department of Education is overrunning its 2026 budget by at least €600 million to €700 million. Such is the scale of the overspending that other departments are to be asked to reduce their spending plans to try to get the overall figures back on track.
The Irish Fiscal Advisory Council (IFAC) has repeatedly criticised spending control in recent years. There was a €5 billion overrun in 2024 – fuelled by pre-election largesse – and a €4 billion overrun for last year. As these figures accumulate, they leave spending well ahead of target over a period of years. The previous government’s goal of keeping annual spending growth at 5 per cent was hugely exceeded. It remains to be seen whether the current administration, with an annual target of 6 per cent, can do any better.
The argument for doing this is well rehearsed. Ireland’s budget is in surplus, but only due to potentially volatile corporate taxes. When what is calculated as the vulnerable part of these taxes is subtracted – the amount based on multinational tax planning – the underlying position of the exchequer is in deficit. And this exposure is growing all the time.
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Pressure will now come on the Government to allow spending to again rise ahead of target. Achieving cutbacks to compensate for overruns in education and elsewhere will be difficult and pressure will remain to compensate households for the fall-out from the war in the Gulf. Corporate taxes may be vulnerable, but this year a hike in the rate on the biggest companies to 15 per cent could increase the haul. The politics are clear; the money is there, the pressure is on to spend it.
The concern is, however, that some time over the next few years corporate taxes stop growing, or start to reverse. This could come as pressure grows on the exchequer to spend more to account for the cost of an ageing population and the digital transition. Pressure will remain, meanwhile, to invest more in key infrastructure. And who knows what impact the fall-out from the Gulf war will have in the short term. Caution is needed.
Context is important. Government spending continues to increase well ahead of inflation and above the rate in other EU countries. Controlling spending is not austerity, it is good management. And not doing so reduces the risks of painful cutbacks in future.
Government departments that show a disregard for their budgets need to do a lot better. Poor public finances management is, put simply, a threat to Ireland’s future.
