The Government needs to better manage unplanned spending, the Fiscal Advisory Council has warned during an address to the Oireachtas Committee on Budgetary Oversight.
Speaking today, the Council highlighted the need for planning and medium term budgeting, saying that it anticipates “significant spending overruns” again this year.
“This is because spending overruns from last year were not taken into account when budgeting for 2025. This has been a repeated issue in recent years,” chair of the Irish Fiscal Advisory Council (Ifac) Séamus Coffey told Committee members.
Speaking on Budget 2026, Mr Coffey informed committee members that current spending overruns this year are likely to exceed €2bn. He said that Ireland should seek to avoid the “boom, bust” spending it had seen in the past, adding that after accounting for exceptional corporation tax and a strong economy, the government is running a substantial deficit which is “equivalent to more than €2,500 per worker.”
“So far this year, the first five months show spending overruns in many different areas. We estimate that current spending overruns of €2 billion are likely for this year. Expected overruns for this year need to be incorporated into spending forecasts for 2026,” Mr Coffey said, adding that the Committee’s purpose was one of collaboration and to identify certain risks and “to avoid some of the mistakes we’ve made in the past.”
“We don’t want to see this boom, bust cycle that has plagued Irish fiscal policy for 40 or 50 years,” he added.
Forecasts in the progress annual report only cover this year and next, representing the bare legal requirements.
The council said that it had consistently stressed the need for budgetary forecasts that go at least five years ahead, adding that the absence of medium term budgetary forecasts showed that the Government “has no realised medium term budgetary strategy.”
“There is no effective framework for fiscal policy at present. European fiscal rules don’t work well for Ireland. They rely on GDP and ignore the risks linked to corporation tax. As a result, Ireland is unlikely to face external scrutiny at an EU level. This means that a domestic fiscal framework is important. Yet it remains weak. The Government is yet to propose a clear plan for a domestic fiscal rule; this means there is no formal guide for domestic budgetary policy,” Mr Coffey told the Oireachtas.
He said that an ageing population, alongside potential fines for failing to reach climate targets by 2025 were among key challenges facing the State.
“There are three key challenges the Government is facing. First, an ageing population will lead to higher spending on pensions, healthcare, and long-term care. The Government has taken two steps to prepare for an ageing population – first, it has established the Future Ireland fund,” Mr Coffey said.
“The council welcomes this, and it should help offset some of the future costs of ageing. The Government has also planned gradual increases in pay-related social insurance, to help fund increased spending needs. Second, the climate transition will need to be managed. There will be budgetary implications with higher spending required to facilitate the transition.
“Some revenues will also need to be replaced as we move away from fossil fuels, which are quite heavily taxed at present. But doing nothing would be extremely costly – if Ireland fails to reduce its emissions, which it currently looks set to by a wide margin, we may have to transfer an enormous amount of money to neighbouring countries.”
CLIMATE FINES
He further said that thirdly, Ireland’s infrastructure is about 25 per cent behind its peers.
“With regards to what happens to the international environment, these infrastructure challenges need to be addressed. If the economy weathers the change in environment, we’ll have high levels of employment and high demand for infrastructure. If there is some form of downturn, then having adequate infrastructure would be key to restoring low unemployment and a prosperous society.”
The challenges of an ageing population and climate change, Mr Coffey said, cannot be adequately reflected in the budgetary forecasts. Mr Coffey was asked about potential EU fines of €26 billion imposed on Ireland for missing climate targets – a figure included in the Council’s report from March 2025. He said that there would be a significant fiscal costs for missing the targets by 2030, via Ireland being forced to buy credits from other countries.
“[Climate change] is something where taking action has benefits […] in terms of reducing our emissions, and two, the compliance costs will be lower. But 2030 is coming very close.”
‘CLEARLY VERY UNPLANNED SPENDING’
Addressing Budget 2026, which will be announced in October, the University College Cork lecturer said he was concerned about the “unbudgeted nature” of Government spending at the moment.
“We have a Budget in October. As we progress through the year, we see overruns developing in many areas, and we see additional policies being introduced for the budgetary year,” the council chair said. “There clearly is very unplanned spending that’s beyond what’s set out in the budgetary figures.”
Spending growth, he noted, should be no faster than the sustainable growth rate of the economy.
“That is not to say the government can’t try to improve public services, support households that are struggling or upgrade Ireland’s infrastructure,” Mr Coffey told the committee.
“But it means that choices would need to be made. If the Government wants to spend more in a certain area, or tax less in another, it needs to offset that by doing less in other areas.”
The Council made four key recommendations to the Government. Firstly, it urged the Government to ensure that budgetary policy reduces the ups and downs of the economic cycle – showing restraint when the economy is strong, and being more generous when the economy is struggling.
Secondly, it urged the Government to set limits on spending net of tax changes, highlighting how the new Government is yet to outline any concrete proposals in that regard. It also urged the Government to focus on competitiveness of infrastructure, saying that the shortage of infrastructure would need to be addressed regardless of what the international environment looks like.
It further urged the Government to improve how it forecasts spending, noting that in the last Budget, it did not account for the money it had overspent in the previous budget. This, it said, created unrealistic budget figures from the beginning, “a problem that keeps recurring.”
“To avoid repeating this mistake, Budget 2026 and future medium term plans must start with accurate baseline figures, that includes all likely overspend in 2025, otherwise projections will be wrong from the outset.”
“Recent budgets have pumped money into an economy that is already performing well,” Mr Coffey told the committee.
Speaking on behalf of the Council, Mr Coffey said it remained committed to ensuring that the Oireachtas achieved fiscal responsibility.