Watchdog says Budget being planned with no ‘clear roadmap’ on fiscal policy

Budget 2026 is being planned “without a clear roadmap for fiscal policy”, the State’s economic watchdog has warned.

The Irish Fiscal Advisory Council has also recommended a reduction in the planned Budget package amid “high uncertainty”.

It said the planned package of 9.4 billion euro for Budget 2026 “is not appropriate” given the economy is still performing well.

The watchdog has recommended a more restrained approach which would help “avoid overheating the economy” and “leave room to respond to future downturns”.

Seamus Coffey, chairperson of the Council, said: “The Irish economy is in a strong position, despite high uncertainty.

“As a result, this is not a time for a large budgetary package. That should be reserved for periods where the economy is weak and needs support.”

The Council says that Ireland’s economy is performing strongly, with record employment and robust consumer spending.

However, it said uncertainty and tariffs pose risks to the economy even if they have not yet had a major impact.

Government spending is rising “much faster than planned” for this year.

Budget 2025 forecast a three billion euro increase in spending, but actual spending is likely to rise by 7.6 billion euro.

The Council said this “repeats a pattern of spending overruns” in recent years.

As the economy is performing strongly, the Council said it does not require support from budgetary policy.

The Government is already providing significant support to the economy.

Without excess corporation tax, the Government is spending eight billion euro more than it collects in revenue this year.

This underlying deficit is likely to increase further next year.

The Council said that because these deficits are occurring when the economy is strong, it reduces the Government’s ability to respond in an economic downturn.

It further said it is “disappointing” that a new medium-term plan was not published alongside the Summer Economic Statement as per a Programme for Government pledge.

It has also highlighted that the Government is yet to set any limit on the sustainable growth rate of spending (net of tax measures).

The Council said that without a rule or limit, budgetary policy will be made in a year-to-year fashion.

It also recommends that the Government fully incorporate spending overruns from this year when setting spending forecasts for next year.

It said overruns are inevitable next year it this does not happen.

The Council says the Government should continue to save into the recently established savings funds.