Mr. Seamus Coffey:

I suppose it is necessary to take into account the circumstances in which you find yourself. Previously, IFAC assessed that Government spending in 2022 and 2023, when inflation was higher, at least partially recognised the need for spending to grow faster than the nominal 5% limit set out in response to the inflation. It is necessary, therefore, to take into consideration where you stand. There are different ways of doing this. It would be possible to have a rule that would adjust automatically for inflation or there could be a get-out clause that states that if inflation is above a particular level, the limit would be adjusted on that basis. Inflation, however, is a factor of economies. Inflation is key for determining living standards if prices are rising and incomes are not, and there should be a response.

Does this in some way discredit having a spending limit? No, but it is something that must be taken into account. When we look at the increases during 2022 and 2023, even if we allowed for inflation, the increases we saw went beyond it. It did, therefore, add to pressures in the economy. I do not, then, think it inherently limits the approach but inflation is certainly something that must be taken into account. Would it be done explicitly, with inflation added in and have a sort of a real change and then put inflation on top of that? That would give us a variable sort of limit based on whatever inflation is forecast. Alternatively, would there be a fixed limit and a decision that if we were to go through a high-inflation environment there would be a get-out clause mandating a response to it? I do not think that either approach undermines the credibility of such a rule. One or the other, however, should be done. There should be a response to inflation. The council recognised this in 2022 and 2023. What the Government did, though, in respect of the increase in spending we saw in those years, went beyond what would be necessary just to respond to inflation.