Minister for Finance Michael McGrath has insisted that the Government “struck the right balance” in Budget 2024 in the wake of the Irish Fiscal Advisory Council’s (Ifac) accusation that the Coalition had used “fiscal gimmickry” to flatter its numbers.
The Fianna Fáil TD robustly defended the Government’s budget decision after the budgetary watchdog warned that the Government’s repeated breaching of its own spending rule has resulted in €6.6 billion of additional expenditure since 2021.
In accusing the Government of gimmickry, Ifac noted that several items included in Budget 2024 were labelled as “non-core” or temporary spending when they were likely to persist.
These included Covid-related health spending, supports for Ukrainian refugees and capital spending increases labelled as “windfall”.
In its latest fiscal assessment report, the budgetary watchdog claimed the Government was adopting an “everything now” approach to budgeting by simultaneously announcing tax cuts, a ramp-up in capital spending and increases to current spending.
The main thrust of the council’s latest criticism centred on the Government’s inability to adhere to its own 5 per cent spending rule, which it described as “deeply concerning”.
The spending rule seeks to keep the annual increase in Government spending inside a 5 per cent ceiling, which is viewed as sustainable for the Irish economy. It was adopted in 2021 but has been broken every year since.
Mr McGrath responded to Ifac’s report on the budget, saying he fully respects their role in providing a critique of government budgetary policy.
“I would strongly argue that the Government’s decision to provide further cost of living supports to households in Budget 2024, many of whom remain under pressure from high energy costs and other day to day essentials such as grocery costs, was the right one.”
He added: “I also believe we made the right decision to increase capital expenditure, as this allows us to build more homes, schools, healthcare facilities, transport infrastructure – all of which we need for a growing population.”
Mr McGrath said that the income tax reductions – which kick in on January 1st, 2024 – “will allow people to keep more of their hard-earned money and will support the domestic economy next year.”
He also said: “This Government achieved a surplus of over €8 billion in 2022 and is on course for large budget surpluses this year and next, despite having come through successive shocks including the pandemic, and the spiral of inflation caused by the Russian invasion of Ukraine.”
He noted that Ireland was one of only seven countries in the EU whose budgetary plans for 2024 were given a strongly positive assessment by the European Commission.
Mr McGrath said the national debt is falling and the Government is setting up two new funds to provide for the future cost of demographic changes, the climate transition and digitalisation.
He welcomed Ifac’s support for these funds.
He said: “Ireland has a well-developed budgetary process with clear steps involving multiple publications of key documents across the year.
“Ifac and its assessments are an important part of this budgetary process, and my department and I will carefully consider their report.”
Labour Party finance spokesman Ged Nash said the Ifac report was its “most damning to date”.
He said: ”Ifac has taken the gloves off and alarm bells should be ringing in government.”
He argued Ifac’s report “has provided compelling evidence that proves the Labour Party’s analysis – Budget 2024 was poorly targeted and will as a result add to the inflation woes that will be most acutely felt by those on low and modest wages and incomes”.
Mr Nash also said: “Minister McGrath courts the appearance of fiscal responsibility. The evidence from the Ifac is damning and suggests otherwise.
“At a time when the heat needed to be taken out of the economy, Fianna Fáil went back to its old playbook – backed up by the Taoiseach – that you can cut taxes for the better off, spend more and grow the economy at the same time.”
A spokesman for Mr McGrath referred to the Minister’s earlier statement when asked for a response to Mr Nash’s remarks.
Meanwhile, when asked about Ifac’s criticism while attending an Irish Congrress of Trade Unions event on the Belfast Agreement in Dublin, Minister for Education, Norma Foley said that “to be fair, I think they’ve also acknowledged there are many fine aspects of the Budget as well”.
“The Government has a duty of care and has to be mindful of the present circumstances but the Government in this Budget is also keeping an eye to the future. There are initiatives designed to ensure that we will have sufficiency of funds going forward and that we’re future thinking and future focused as well.
“I think there has been a good marriage within the Budget of recognising present difficulties while keeping an eye to the future,” she said.