ESRI recommends ‘tighter’ fiscal stance in Budget

By Cillian Sherlock, PA

A “tighter” fiscal stance in next month’s Budget is needed, according to an economic think tank.

The Economic and Social Research Institute (ESRI) also called for targeted expenditure to address challenges in the delivery of housing and infrastructure.

There is planned package of €9.4 billion for Budget 2026 – including €7.9 billion in additional public spending and €1.5 billion in the tax package.

The Budget will be delivered by Minister for Finance Paschal Donohoe and Minister for Public Expenditure Jack Chambers on October 7th.

As part of its quarterly economic commentary, which was published on Thursday, the ESRI said the economy continues to perform robustly with continued growth in consumption, employment, and tax receipts.

It also said an EU-US agreement on tariffs has removed much of the uncertainty that prevailed across the year.

However, it said the new situation of a 15% tariff represents a “clear deterioration in Ireland’s trading environment relative to previous policy regime”.

It said this will impact the firms and sectors whose exports are most exposed to the US, placing a renewed focus on policies around trade diversification and competitiveness.

In an accompanying research note, Professor John Fitzgerald’s analysis suggests that, at least in the short term, US tariffs will impact profits of pharmaceutical companies operating in Ireland, rather than output or employment.

Meanwhile, the ESRI has revised its annual forecast for housing completions up to 35,000 for 2025.

However, it said a notable slowdown in commencements in 2025 has caused it to revise down its forecast for 2026 to 36,000 units.

It said the outlook beyond the forecast horizon “appears to be weakening”, with falling planning permissions and low commencements.

The ESRI’s assessment suggests that “the fiscal stance needs to be tightened in Budget 2026”, in part to avoid overheating.

Commenting on the report, ESRI researcher and Professor Alan Barrett stated: “Recent months have been characterised by uncertainty and volatility in the international economic environment, casting a renewed light on domestic policy.

“In that context, we point to the clear need for a tighter fiscal stance in Budget 2026.”

Dr Conor O’Toole, Associate Research Professor at ESRI, said: “Ireland’s economy has performed robustly in recent years despite uncertainties and is currently operating close to capacity.

“Addressing bottlenecks in housing and infrastructure is challenging at full employment and expenditure needs to be targeted and sequenced to address these constraints.”

Earlier in the month, the State’s economic watchdog also recommended a reduction in the planned Budget package amid “high uncertainty”.

The Irish Fiscal Advisory Council said the €9.4 billion package “is not appropriate” given the economy is still performing well.

It said a more restrained approach which would help “avoid overheating the economy” and “leave room to respond to future downturns”.