The Government needs to look out for signs of overheating in the economy and might have to start thinking about taking money out of the economy through a rainy-day fund, to head off another boom-bust cycle, according to the Irish Fiscal Advisory Council.

It said the strong economic growth requires no further fiscal stimulus and a 2017 budget package of €900m would be consistent with prudent economic and budgetary management.

However, it says some €6bn - around half of the additional money the Government believes it will have to spend on budget increases over the next five years - will be needed for cost-of-living increases to existing spending programmes, to stop inflation eating away at the real value of spending in areas like social welfare

In a formal assessment of the Government's Spring Economic Statement, the Fiscal Council said the economy has recovered at a faster pace than expected - but warns that hard-won gains can be quickly lost by a high debt country making bad budget choices.

It said the Programme for Government has a list of new spending and tax cutting plans, but does not match them with the resources expected to be available during the lifetime of the new Government - the so-called fiscal space.

That would leave less money for other programme commitments.

Speaking on RTÉ's Morning Ireland, IFAC Chairman Professor John McHale said €6b is available to the Government, and not €12b as stated by the Minister for Finance Michael Noonan in the run up to the General Election.

Prof McHale warned of the danger of undoing the progress made so far by backtracking on the path of fiscal responsibility.

"We very much welcome the commitment in the Programme for Government to follow the fiscal framework as it's set down in law, but it does contain a lot of uncosted policies and we're really going to have to wait-and-see how those policies are reconciled with the available fiscal space.

"So to some extent to jury is still out until that detail is provided."

In relation to Budget 2017, he said the minister's sums are in line with prudent budget management and the €900m, that Mr Noonan said is available, is a modest contraction giving the underlying potential growth of the economy.

He said the economy is currently "pretty close" to its potential, but he said this could change if it is stimulated too much.

Prof McHale said the council is also concerned about the Government's tax-take being ahead of target.

He said this is due to the increased amount of corporation tax, which he describes as a volatile source of revenue, and he said the Government needs to exercise caution in planning permanent increases in spending on the back of this tax take.

The Fiscal Advisory Council will release its Budget statement in September.