Kelly urges 5 percent spending cap as underlying deficit widens
Central Bank of Ireland Director Robert Kelly urged the government to cap net spending growth at 5 percent in his statement to the Oireachtas budgetary committee on September 16. Kelly warned that Ireland's underlying deficit expanded to €7.2 billion in 2025.
From €800 million to €20 billion
Ireland's underlying budget deficit widened from €800 million in 2019 to €7.2 billion in 2025, driven by nominal spending growth of 55 percent since 2020.
Kelly warned that current projections will push this gap to €20 billion by 2030, or €26 billion under historical spending trends.
While headline figures show a surplus, €16.5 billion in excess corporation tax in 2025 masked structural imbalances.
These volatile receipts make up 15 percent of total tax revenue.
Without restraint, the State must borrow nearly €8 billion between 2028 and 2030 to fund sovereign wealth allocations for the Future Ireland Fund and the Infrastructure, Climate and Nature Fund, while 10-year bond yields average over 3 percent.
Four principles for Budget 2027
Borrowing costs have increased markedly from 2015-2021 levels, when 10-year bond yields averaged 0.5 percent.
To avoid debt-financed savings, the Central Bank of Ireland urged adherence to four fiscal principles: sustainability, cycle-smoothing, simplicity, and disciplined flexibility.
Limiting annual expenditure growth to 5 percent would maintain public services, deliver the National Development Plan, and safeguard sovereign wealth contributions.
Kelly also advocated broadening the tax base, highlighting that capital investment is tracking 9 percent behind target in 2026.
The windfall illusion
Relying on corporate windfalls creates a fiscal illusion that conceals structural overspending.
Borrowing at elevated yields to fund statutory savings accounts reveals flawed budget planning.
Without an enforceable spending rule, any revenue shock will force abrupt and painful adjustments.