Irish budget watchdog renews criticism of spending

The establishment of a sovereign wealth fund was welcomed

Ireland's budget watchdog has renewed criticism of government spending plans but welcomed the establishment of a sovereign wealth fund.

The Irish Fiscal Advisory Council (IFAC) was responding to Tuesday's budget.

The budget included €5.3bn (£4.5bn) of core spending increases and a further €7.2bn of one-off and temporary spending.

The IFAC said the "exceptionally large" spending package was likely to add to inflation, leaving it higher for longer.

The inflationary risk is because the economy is already growing strongly and the unemployment rate is at a once-in-a-generation low and is forecast to remain favourable.

Before the budget, the IFAC advised the government to adjust its plans to stick to its own rule that core spending should not increase by more than 5% a year.

Instead it said the government had gone further than its pre-budget plan which it described as "serious cause for concern".

As well as laying out tax and spending plans, Finance Minister Michael McGrath also announced plans for two long-term public investment funds.

The Future Ireland Fund aims to have assets of €100bn (£86bn) by 2035 and its investment returns will be used to help fund things such as healthcare and pensions.

Irish Minister for Finance Michael McGrath and Minister for Public Expenditure Paschal Donohoe unveil the budget on Tuesday

A second €14bn (£12bn) fund will be ringfenced for spending on infrastructure, climate and nature.

The funds are being set up using some of the corporation tax windfall that Ireland has received from major global companies.

The IFAC said that if "used correctly", the Future Ireland Fund could help address future ageing pressures, lessening the need to increase taxes on future taxpayers.

However, it added that it favoured more of the tax windfall being set aside.