Is the Govt's attempt at fiscal discipline unravelling?

Last September, ministers were warned by Minister for Public Expenditure Jack Chambers that continuous spending overruns by departments which can't operate within their means had to come to an end.

He told Cabinet colleagues that extra allocations of funds were not sustainable and should not be continued.

In November, Minister for Finance Simon Harris said he wanted to see an end to the "drift spending where 'in year' there is additional spending".

Budgets were being increased and "departments now need to live within those budgets", he added.

But months after warnings from the two ministers, there are signs that the attempt at fiscal discipline is unravelling.

Outlays by the big spending departments have shot up this year.

Minister for Health Jennifer Carroll MacNeill this week told the Oireachtas Health Committee that she was seeking an extra €300m, the vast bulk of which is for day-to-day spending.

About €1 in €4 spent on public services in Ireland goes on health - so an overrun in that department can affect the entire Budget.

This additional spending by the Department of Health is on top of a 6% increase agreed in the Budget which brought its allocation to €26.9bn for 2026.

So far this year its health spending is 10.6% above the same period in 2025.

To deal with the overrun, Health Service Executive chief executive Anne O'Connor paused non-frontline recruitment.

The Department of Education received a 7% increase in the Budget, which was announced in October, bringing its total to €12.6bn.

But since then, Minister for Education Hildegarde Naughton has successfully argued her department has been underfunded for years and that it cannot remain within the allocation.

She was granted an additional €646m for this year.

Of that, €200m comes from a contingency fund and the balance of €446m from a levy which is being imposed on other departments next year.

Unsurprisingly, the levy, which was agreed by Cabinet to pay for Education's overrun, has caused friction with some ministers, with a question mark over what will happen to student fees next year.

The Department of Social Protection's spending is up 10.6% so far this year.

Minister for Social Protection Dara Calleary has seen expenditure rise due to the extension of the fuel allowance throughout the month of April, to help social welfare recipients with rising energy costs.

In general, across Government day-to-day expenditure such as wages, spending is up 9.3% on the same time last year - far in excess of the Budget’s 6.3% forecast.

The State's spending watchdog, the Irish Fiscal Advisory Council, said: "If this pace of spending growth continues, it would result in significant spending overruns."
Usually spending overruns become an issue in the second half of the year, but the fact it is causing problems in early May is a worrying sign.

Sources within the Coalition from Fianna Fáil, Fine Gael and Independents are adamant they want to avoid the massive additional spending which occurred in recent years.

One way in which it could be dealt with is to impose further levies.

One Government source said: "The principle of the levy is there.

We could have to do it in respect of other departments."
How would departments fund such a levy, especially if they are struggling to keep within their budgets?

So far, no detail has been released about how the levy for the overrun in education will be met by other departments.

Nor is it clear where the additional money for the Department of Health will be found.

But even if there are significant spending overruns, it is likely the Government could still run a surplus because it is expected there will be a significant increase in corporation tax payments in 2026 on top of a massive 17% rise last year.

Some 87% of that money comes from foreign multinationals.

But much of it relates to activity which happens outside Ireland and those tax payments are considered highly volatile.

In other words, companies could easily move the money to another jurisdiction without closing Irish operations or making staff redundant.

While Ireland is expected to run a surplus this year, if those windfall corporation tax payments are excluded there would be a massive deficit of €10bn.

Allowing departments to continuously exceed their allocations, year after year, is a mistake with potentially lasting consequences.