Mr. Seamus Coffey:

I thank the Chair for his welcome. The council is grateful to the committee for inviting us to appear before it again. We value our engagements with the Oireachtas highly and consider these opportunities an integral part of our work. As an official independent body established under the Fiscal Responsibility Act 2012, the council's mandate currently revolves around four elements: endorsing and assessing the official macroeconomic forecasts; assessing official budgetary projections; monitoring compliance with fiscal rules; and assessing the Government's overall fiscal stance. Our mandate may be expanded in line with a 2024 EU directive, which assigns additional tasks to independent fiscal institutions such as the Irish Fiscal Advisory Council. This directive must be transposed into Irish law by the end of the year. The focus of the Irish Fiscal Advisory Council is the broader fiscal and macro perspective rather than any individual tax or spending measures. Ahead of each budget, we produce a report setting out our views on the Government's plans. We published a report last week, and this is what will speak to today.

Ireland's economy is continuing to perform well. More people are in work than ever before and employment continues to grow. Despite high uncertainty, consumer spending is increasing. While global uncertainty and trade tariffs pose risks, they have not yet had a major impact on the Irish economy. The economy is performing well on its own and does not require support from policy. Monetary policy is already providing support which the economy does not need. Interest rates have been halved over the past 14 months. Budgetary policy should attempt to reduce the ups and downs of the economic cycle. This means showing restraint when the economy is strong, like right now, and being more generous when it is struggling. Budgetary policy is already providing a stimulus to the Irish economy. When excess corporation tax receipts are excluded, Government spending will surpass revenue by around €8 billion this year. This deficit is likely to become larger next year as the Government plans to increase spending at a faster rate than underlying Government revenue. Running underlying deficits when the economy is strong limits the Government's ability to step in and respond in the event of an economic downturn. A good example of when the Government did this was during the Covid-19-induced downturn. A bad example was the large underlying deficits in the run-up to the 2008 financial crisis and the subsequent austerity policies. We do not want a repeat of these policies.

The Government is planning a €9.4 billion package in budget 2026. Net spending, spending increases net of tax measures, is projected to increase by 6.5% next year. This is faster than the sustainable growth rate of the economy. Given the strong position of the economy, the council would recommend a more modest budget package than that which is currently planned. This does not mean there are no issues that can be addressed. It means the Government needs to choose between various options. If investment is the Government's priority, that means less room for day-to-day spending increases or tax cuts. Government spending is regularly going beyond what is announced on budget day. Last October, the Government budgeted for a €3 billion increase in spending in 2025. In practice, spending is likely to rise by €7.6 billion. In order to break this cycle of repeated overruns, the Government needs to fully incorporate likely overruns in 2025 when setting spending forecasts for 2026.

The Government needs to commit to a clear guide or rule for budgetary policy. The Government is yet to set any limit on what is sustainable for the public finances. Without a rule or limit, budgetary policy will be made in a year-to-year fashion. If taken seriously, the new European requirements for a medium-term plan could help. The Government committed to submitting a revised medium-term plan alongside the summer economic statement. It is disappointing that the plan has not yet been published. The council has outlined a number of characteristics it would like to see in a budgetary rule. These include setting the rule in legislation; applying it on a general government basis; and ensuring it protects public investment by setting a minimum level as a percentage of national income. One welcome reform in recent years has been the introduction of two savings funds. These funds can help to offset future budgetary challenges, such as an ageing population and climate change.

To conclude, I will highlight five key recommendations the council makes. The budget package for 2026 should be smaller than the €9.4 billion currently planned. This would leave the Government more scope to use budgetary policy to combat the next economic downturn.

The Government needs to fully incorporate spending overruns from this year when setting spending forecasts for next year. If this does not happen, overruns are inevitable next year.

The Government should publish a revised medium-term fiscal plan alongside the budget. If taken seriously, the plan could move Ireland away from year-to-year budgeting.

The Government should set a domestic budgetary rule. This would set a limit on the sustainable growth rate of spending, net of tax measures. Recent increases have been in excess of what is sustainable. The Government should continue to save in the recently established savings funds. The Future Ireland Fund can be a useful tool to offset future budgetary pressures, which include the ageing population and climate change.

I thank the committee members for their attention. We remain committed to assisting the Oireachtas in achieving fiscal responsibility and economic stability. We look forward to the discussion and members' questions.