Government warned that Ireland's recovery may "overheat"

"Ireland has shown a minimalist approach to complying with the fiscal rules"

In its latest economic assessment, the Irish Fiscal Advisory Council (IFAC) has warned that the Government went back to the policy of 'if we have it we’ll spend it' last year.

It extracted about €600m to pay for rising population demands in areas such as education and health and a further €700m in public sector and pay and other current spending.

The Council has confirmed that the next minister for finance will only have about €500m in terms of additional spending or tax cutting potential in next October’s budget.

The IFSA also echoes the warning of the ESRI earlier this year that a sharp increase in the number of new homes likely to be built over the next few years, could, in a scenario of almost full employment, lead to high wage increases and a loss of competitiveness, first in the building sector, and then across the economy 
 
"Fiscal policy may have to lean against the wind if the domestic economy begins to overheat, especially if the construction sector responds to persistent supply shortfalls," the IFAC said.

"Since a deficit of less than 3% of GDP was achieved in 2015, Ireland has shown a minimalist approach to complying with the fiscal rules. The rules have been breached in 2016, while plans suggest a possible further breach for 2017. Unless the public finances are managed carefully, sanctions could be triggered," the council warned.