Analysis: Ireland’s budget watchdog tries to caution Government about repeating mistakes of the past, but their warnings to date have fallen on deaf ears
This year, those born during the 2008 global financial crisis will turn 18. These young adults have no memory of the crash that burst Ireland’s housing bubble but will nonetheless be impacted by its long-lasting repercussions.
Although the current housing crisis is forecast to peak within five years, housing shortages are likely to persist until 2040. Property prices fell dramatically after the crisis, and employment in the construction industry fell by 65% over five years. Consequently, the number of new homes built declined dramatically. It is widely understood that loose lending by banks pre-crisis drove up property prices and triggered the banking crisis. To protect against another credit fuelled housing bubble the Central Bank introduced mortgage lending rules to moderate house price increases in 2015, limiting access to credit.
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From RTÉ Radio 1’s This Week, as the National Asset Management Agency enters history, a post-mortem on what it did by former governor of the Central Bank Patrick Honohan
Less often discussed is the role that Government pro-cyclical fiscal policy played in exacerbating the impact of the crisis on the Irish economy. During the Celtic Tiger years, public spending increased rapidly as the economy grew and the tax base narrowed. Over reliance on tax revenue from the construction industry meant that when the crisis hit and the industry collapsed, so did the governments revenue streams.
The bailout programme that followed included both austerity measures and reforms which included the creation of an independent budgetary watchdog. The Irish Fiscal Advisory Council was established in 2012 to strengthen public finances and improve fiscal polic. The Council’s functions are enshrined in legislation and include providing expert assessment reports.
Essentially, the Council was put in place to ensure that policy failures, such as those pre-crisis that caused one of the worst recessions across the globe post-crisis, were not repeated. Whereas Central Bank mortgage lending rules were put in place to safeguard against another housing bubble, the Council was put in place to protect against reckless government spending amplifying future boom-boost cycles.
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From RTÉ Radio 1’s Morning Ireland in June 2026, Seamus Coffey from the Irish Fiscal Advisory Council discusses their latest report which warns that spending is growing faster than the sustainable growth rate of the economy
But while the Central Bank has the power to enforce mortgage lending rules, the advice of the Council is non-binding. Governments can choose to ignore the recommendations of the council – and frequently do. This begs the question, why establish an advisory council if you are not going to take their advice? The short answer is that in the end, it all comes down to politics. Governments face trade-offs with every prudent decision; cutting taxes reduces the revenue available for spending on public services, while increasing taxes allows for more public services but may distort incentives and reduce economic activity.
When it comes to fiscal policy, governments often face the choice between what is fiscally prudent, and what is politically popular. This can occur because of significant gaps in public understanding of fiscal policy, and a tendency towards pessimism. Across all income groups, people expect the burden of future increases in taxation will fall more on themselves than on others. While voters don’t want to see an increase in the cost of living or another recession, they don’t always link these outcomes to unsustainable increases in government spending that feed inflation and risk overheating the economy.
For example, the Council has long warned of the risks associated with our highly concentrated narrow tax base. Their most recent report forecasts that tax revenue is set to become even more concentrated out to 2030. But widening the tax base requires increasing taxation, which in turn requires policy acceptance.
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From RTÉ Radio 1’s Drivetime in December 2025, Seamus Coffey from the Fiscal Advisory Council warns Government once again over spending
Recent data on the attitudes of Irish citizens towards taxation shows that, while one in four think taxes should stay the same, there is an even split between those who think taxes are too high and would reduce them even if that means fewer or lower quality public services (one in three), and those who would willingly pay higher taxes for better services (also one in three). Of those who think taxes should be lowered, the majority (67%) think income tax should be reduced first.
Opinions on taxation can depend on perceptions, which in turn depend on both the salience of taxes and where attention is focused. Income tax is particularly salient as workers are typically paid frequently and payslips make it clear how much tax is deducted.
Because tax systems are complex and non-linear, people tend to simplify by using a mental shortcut called ‘schmeduling’, focusing either on their average tax rate (what percentage of their overall salary they pay in tax) or their marginal tax rate (how much tax they pay on additional income earned, for example for overtime). Which of these you focus on impacts your perception. Because of our highly progressive tax system, marginal tax rates in Ireland are just above the EU average, while average tax rates are well below EU average. Those focusing on the former are therefore likely to perceive a high rate of income tax, while those focusing on the latter may be willing to pay more tax.
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From RTÉ Radio 1’s Morning Ireland in November 2025, Seamus Coffey from the Fiscal Advisory Council says Government are ‘budgeting like there’s no tomorrow’
The Council have also repeatedly warned the Government that universal measures to address the cost of living crisis are inefficient and highlighted that targeted supports are less costly, less likely to further drive up price levels, and would better protect vulnerable households. However, reducing inflation remains the top priority for most Irish citizens and the recent package of predominantly universal fuel supports was supported by a large majority of voters.
Some of this support is again likely influenced by perceptions, given the salience of fuel prices and how frequently people fuel their cars. For example, post Russia’s invasion of Ukraine inflation spiked in October 2022 before declining. However, as inflation fell, the perceived inflation rate actually increased, to the extent that people perceived the rate of inflation to be about three times the actual rate by mid 2024. Increases in frequently purchased grocery prices together with media focus on the cost of living amplified perceptions of inflation.
While the Fiscal Advisory Council endeavours to safeguard against the current Government repeating the mistakes of the past, their warnings to date have fallen on deaf ears. Perhaps this year will be different, and Budget 2027 will include measures to widen the tax base and realistic plans to moderate spending? I won’t hold my breath.
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The views expressed here are those of the author and do not represent or reflect the views of RTÉ
