The budgetary watchdog, the Irish Fiscal Advisory Council (IFAC), has said the Government’s commitment in the Budget to support incomes and the economy is “appropriate”.
However, it was critical of billions in non-Covid expenditure commitments for which it said there were no long term funding plans in place.
The Government is expected to borrow over €20bn this year and around the same amount again next year to support the economy and incomes through Covid-19 and the possibility of a no-trade deal Brexit.
While it says the huge amount of public funding is right, the budgetary watchdog is critical of between €5.5bn and €8.4bn it estimates will be spent next year on non-Covid related expenditure.
It highlights the hiring of more than 17,000 additional recruits to the wider public service.
It warned these spending commitments are “surprisingly large” and likely to be permanent.
The council is critical of a lack of a long-term funding strategy and said that commitments in the programme for government leave few options to raise additional revenue.
IFAC warns the economic impact of Covid-19 will be felt for a long time and it does not expect the economy to get back to pre-Covid levels until 2022.
It describes as “appropriate” the level of borrowing undertaken to fund schemes, such as the PUP, the billions set aside for Covid-19 health expenditure and a range of grant and loan schemes for businesses.
But it has identified €5.4bn of Government expenditure in non-Covid related areas, which it believes could end up being permanent commitments.
It also said there was very little information or transparency on an additional €2.9bn spread across local authorities and the semi-state sector.
It said the programme for government agreed between the coalition partners leaves little room to raise additional revenue.
The council has warned that Ireland’s rising debt levels, even with the help of historically low borrowing rates, leaves the country vulnerable to shocks in the future.
It urged the Government to set out credible plans on how to pay for increased levels of public expenditure in its Stability Programme Update next April.
IFAC said Ireland already had a relatively high level of debt before Covid-19 hit, and that challenges including Brexit, changes to the international corporate tax regime, an ageing population and an updated assessment of the cost of Sláintecare remain.
It welcomed the establishment of a Pensions Commission but pointed out that the decision to defer increasing the qualifying age for the state pension to 67 will cost €575m next year.
It forecasts that under current policies, by 2050, half of Ireland’s debt burden “would reflect unfunded ageing costs”.