Watchdog: 2017 budget breaks EU rule

Michael Noonan’s 2017 budget is already on course to break EU rules even before any breaches in the Lansdowne Road public pay agreement are accounted for, the country’s fiscal watchdog has said.

In its assessment of the spending increases and tax cuts Mr Noonan unveiled last month, the Irish Fiscal Advisory Council (IFAC) said the proposed budget items mean the State will likely spend €200m more than is justified under the oversight Brussels has over national budgets.

It warned also there was little remaining buffer for spending increases next year and in the coming years, should the economy be hit by any economic blow.

IFAC chairman John McHale, who steps down from the watchdog in the coming weeks, told reporters the breach was particularly disappointing because the rules were put in place to stop any repeat of the conditions that led to the crash in the first place.

The State’s so-called fiscal space out to 2021 was already “almost all” accounted for, he said.

“The fact that planned expenditure was already set at the maximum limit permitted by the expenditure benchmark is a concern,” IFAC said in its report.

The watchdog was set up by statute at the height of the financial crisis and it was subsequently given the power to endorse or reject Government economic forecasts.

However, its assessment of the €200m breach in budget 2017 acknowledges under the EU’s own rules the spending excess “is not considered a significant deviation” and would be unlikely to trigger any large fine for the State.

Earlier this month, the European Commission effectively gave Mr Noonan’s budget a preliminary pass rate, saying the measures were “broadly compliant” with EU budget rules. Its final assessment is due next spring. The Commission had also warned the State about relying on potentially “volatile” corporate tax revenues to fund in creased spending.

Ahead of the latest exchequer returns figures published later this week, corporate tax revenues have already taken in €821m more than was anticipated.

It was a warning IFAC has repeated for a second year. Corporate tax receipts delivered one in every eight euros in exchequer revenues and relying on an uncertain tax source was unwise, the watchdog said.

Prof McHale said the “positives” for the economy included an unemployment rate which had tumbled from its peak of over 15%, and the sharp fall in the State’s cost of borrowing.

However, citing softening in retail sales growth and industrial output, Prof McHale said there were “warning signs” about the slowdown in growth in the underlying economy.