The Irish Fiscal Advisory Council (IFAC) said in a statement issued today on Budget 2016 that the proposed tax and spending package as announced in the Spring Economic Statement last April "is within the range of prudent policies from an economic perspective."


The IFAC has no powers or discretion to issue its own forecasts unlike its UK counterpart. It can only issue an opinion and today's positive statement is the first one since it was established in 2011 at the request of the troika, where it has been positive on the proposed total fiscal adjustment.   

The main findings of today's statement are:

1) "Improvements in the economy and the public finances mean that the Government is likely to comfortably succeed in reducing the deficit to below the 3 per cent ceiling in 2015. Given uncertainty around the outlook for the international economy and Ireland’s high debt level, continued policy vigilance is required to bolster the resilience of the economy and the public finances to potential adverse shocks.

2) The Government’s budgetary framework, containing both domestic and EU elements, provides critical long-run protection against the type of pro-cyclical policies that caused such serious problems in the past. To avoid undermining the integrity of the new framework, the Council is strongly of the view that the plan outlined in Budget 2016 should be consistent with meeting all of the rules in 2016 and later years.

3) The proposed €1.2-€1.5bn tax and spending package for Budget 2016 reduces the primary (non-interest) structural budget deficit insofar as expenditure growth, adjusted for planned tax changes, is kept below the estimated potential growth of the economy. Given recent high growth outturns and falling unemployment, the Council assesses that the degree of slack in the economy is likely to be diminishing rapidly. This limits the economic case for a more expansionary fiscal stance. In addition, the debt-to-GDP ratio remains extremely high, leaving debt sustainability vulnerable to adverse shocks in the context of a volatile global economic environment.

4) Weighing these factors, and on the basis that it meets full compliance with the rules, the proposed €1.2-€1.5bn package is within the range of prudent policies from an economic perspective. Announcing in advance the planned budget package represents a useful innovation in Ireland’s budgetary framework and can contribute to avoiding a pro-cyclical approach to fiscal policy whereby additional revenues are spent as they come in. This improvement would be undermined by an upward deviation from the pre-announced €1.2-€1.5bn package in the budget.

5) Decisions about tax cuts in the forthcoming budget should take place in the context of well-specified medium-term plans that recognise underlying spending pressures. In the absence of offsetting savings, tax cuts would mean an even tighter squeeze on public spending over the coming years than already envisaged in the Government’s April 2015 plan, making it more difficult to fund future current and capital expenditure needs."

IFAC statement

Irish Budget 2016 debt GDP

Irish Budget 2016 set for 13 Oct 2015