Ireland to break spending rule again in pre-election budget

Dublin: Ireland will increase public expenditure by 6.9 per cent in 2025, again breaking the government’s own budget rule capping spending growth at 5 per cent to hand itself a much bigger than planned pre-election budget package of 8.3 billion euros.

That was far ahead of the 5.7 billion euro package of tax cuts and spending increases assumed a year ago. The government said it was adjusting its strategy to accommodate higher capital spending and to provide more public services for a larger-than-assumed population.

That will allow ministers to introduce 6.9 billion euros worth of new spending measures and 1.4 billion euros of tax cuts in October, one month before analysts expect an election to be held. The election must be called by March 2025.

The plans are supported by one of healthiest public finances in Europe. Ireland expects to run a budget surplus this year of 8.6 billion euros, or 2.8 per cent of national income, most of which will be put into a new sovereign wealth fund.

The surplus is entirely driven by booming corporate tax receipts paid by Ireland’s hub of large multinationals.

The government introduced the budget rule in 2021 but will now break it for the third successive year, having put previous breaches down to the need to help ease a cost of living crunch. Inflation fell to a more than three-year low of 1.5 per cent last month.

The almost 7 billion euros of permanent expenditure comes on top of 4.5 billion euros already set aside for next year to assist with costs such as accommodating Ukrainian refugees that the government says may not repeat fully into the future.

Ireland’s Central Bank and independent fiscal watchdog have warned against breaking the budget rule again.

Central Bank Governor Gabriel Makhlouf said last month that continued breaches would lead to higher inflation, significantly add to the risk of the economy overheating, damage competitiveness and long-term prospects for growth in living standards.