Finance Minister Michael McGrath has defended his plans to breach a key government rule, stating that he must take inflation into account when shaping the upcoming budget. His remarks come in response to the Irish Fiscal Advisory Council’s (Ifac) warning about the credibility of the government’s budget plans, as McGrath’s spending growth plans for 2024 exceed the 5% growth ceiling on expenditure. Despite this, McGrath emphasized that the government carefully listens to Ifac and other advisors, and will face questioning by the Oireachtas Budget Oversight Committee. He also asserted that the government has a wider mandate to deliver on societal objectives.
McGrath highlighted that the budget planning sums were transparently laid out in the summer economic statement, and that the spending rule was never intended to be inflexible. He argued that an adjustment to the rule is necessary this year, as spending growth plans are approaching the 5% ceiling. Three months prior to the budget, McGrath stated that he has determined the amounts to be spent on core and non-core expenditures, including housing refugees from the war in Ukraine and one-off spending items. He assured that the October budget will be consistent with the package outlined in the summer economic statement.
When questioned by reporters, McGrath emphasized the complexity of planning billions of euros in spending over a three-year period. He justified the departure from the spending rule by citing inflation as the reason, asserting that while the rule is good policy, it cannot be set in stone and must consider economic conditions. McGrath referred to recent projections from the Central Bank and other forecasters, which indicate that inflation next year will be higher than what was anticipated in April.
McGrath also reiterated his intention to seek government approval for the establishment of a long-term savings fund and an investment fund. These measures aim to ensure that capital spending projects are not the first to be reduced during future economic downturns. Ifac’s new chair, Michael McMahon, expressed concern last week about injecting spending into an economy with elevated inflation and historically-low unemployment levels.