Irish Budgetary Oversight Committee Raises Alarm on Pro-Cyclical Policy and Narrow Tax Base in Post-Budget 2026 Report

Committee on Budgetary Oversight Publishes Critical Report

The Committee on Budgetary Oversight in Ireland published its Post-Budget 2026 Report on Wednesday, January 21, 2026, highlighting serious concerns regarding the nation's fiscal direction. The report specifically points to the pro-cyclical nature of current budgetary policy and the narrow and volatile tax base as key vulnerabilities for the Irish economy.

The Committee, established to enhance the Oireachtas's role in the budgetary process, reviews macroeconomic and fiscal issues pertinent to budget considerations. Its latest findings underscore the need for strengthened fiscal resilience and better protection for vulnerable households, offering a series of recommendations to address these issues.

Warnings Against Pro-Cyclical Budgetary Policy

The report cautions that Budget 2026 is 'expansionary and pro-cyclical' at a time when Ireland is experiencing near full employment and capacity constraints. This approach, according to the Committee, risks 'overheating and undermining economic resilience'. Stakeholders, including the NERI, ESRI, and the Irish Fiscal Advisory Council (IFAC), have echoed these concerns, noting that net spending increases of €9.4 billion are 'well above a sustainable growth range' and could exacerbate inflationary pressures.

Both the IFAC and the Central Bank of Ireland have indicated that Ireland's 'headline surpluses mask an underlying deficit' once volatile windfall corporation taxes are excluded. They argue that recent policy has provided 'stimulus to an already tight labour market'. Furthermore, briefing material from the Department of Finance for Minister Simon Harris revealed that 'excess' corporation tax receipts might be obscuring an underlying deficit exceeding €13 billion. Officials also noted a 75 percent increase in public spending since before the pandemic, raising alarms about a lack of budgetary discipline.

Concerns Over a Narrow and Volatile Tax Base

A central theme of the report is Ireland's 'heavy reliance on windfall corporation tax receipts', which leaves the public finances exposed to external shocks. The Committee advocates for the development of a 'broader, more sustainable tax base'. This vulnerability is underscored by the fact that a significant portion of corporation tax, specifically 52 percent, originates from just 10 companies.

The Department of Finance has explicitly warned that 'financing such an increase in spending on the basis of a narrow tax base is a serious fiscal vulnerability'. Labour Party Leader Ivana Bacik TD has also voiced concerns, stating that Ireland's 'overreliance on a narrow base of multinational corporation tax receipts leaves the country vulnerable to external shocks'.

Recommendations for Fiscal Resilience

While acknowledging some positive measures introduced in Budget 2026 concerning infrastructure, business viability, and child poverty, the Committee believes more action is necessary. The report concludes by setting out a series of recommendations aimed at strengthening Ireland's fiscal architecture, enhancing transparency, and ensuring that budgetary policy supports both economic resilience and social equity. The Committee Cathaoirleach, Deputy Richard O'Donoghue, presented the report.