Noonan’s giveaway budget ‘amounts to €3bn’

Finance Minister Michael Noonan will announce one of the largest ever pre-election giveaway budgets tomorrow, because his measures will effectively amount to €3bn, double the amount the Coalition has long advertised, one of the country’s top economists has said.

Noonan’s giveaway budget ‘amounts to €3bn’

Conall Mac Coille, chief economist at Davy Stockbrokers, said the “enormous” increase in spending of €1.5bn the Government announced over the weekend and which it said will be allocated to departments for spending in the last few weeks of this year will actually lead to a doubling of the total of the 2016 budget measures, to €3bn.

Early on Saturday, the Department of Finance published its White Paper on Estimates of Receipts and Expenditure detailing the amounts it plans to spend on so-called supplementary budgets across health, transport, education and social welfare, in the final weeks of 2015.

Those additional measures totalled €1.5bn, including about €600m to plug the huge hole in the health budget. The measures also featured a range of new policy measures across other departments which effectively boosts the overall level of spending for 2016.

Writing in a research note published today, Mr Mac Coille said the pretence that the €1.5bn in supplementary spending will not affect the 2016 budget cannot be sustained.

Taken together with a further €1.5bn of measures Mr Noonan is due to unveil tomorrow, the overall size of the 2016 budget therefore balloons to €3bn.

Mr Mac Coille said Europe’s new strict lending rules, which were meant to limit the amount of money a government can spend in any single year, have had “an inauspicious start” because the rules have encouraged 2016 spending to be allocated into the last months of 2015. The new rules start from January and therefore police budget sums for 2016.

“No doubt the introduction of an additional €1.5bn of spending in the final quarter of 2015 has been implemented with the forthcoming election in mind,” said Mr Mac Coille.

“However, the introduction of the new expenditure benchmark, intended to limit spending growth to 1.8% in 2016 has also had an inauspicious start, creating an incentive to bring forward spending measures into the final quarter of 2015.

“Finally, by raising spending this year, the Government may try to maintain the pretence budget 2016 will contain a smaller giveaway worth only €1.5bn.

“It’s a big giveaway ahead of the election,” Mr Mac Coille told the Irish Examiner.

“The majority of the additional €1.5bn of spending decisions will be carried through into higher spending in 2016 as well.

“For example, a €600m health spending overrun will be locked into next year’s spending too. The remainder of additional spending looks set to be distributed into the Departments of Transport, Education and Social Protection,” Mr Mac Coille said.

The Government is in line to bring in at least €2.3bn more in tax revenues than it had been projected a year earlier.

Many analysts expect the highlight of Mr Noonan’s tax-cutting measures will feature reductions in the Universal Social Charge.

The Irish Tax Institute has said estimated that reducing the USC rate to 6% from 7% for taxpayers earning over €17,576 a year would cost the exchequer €364m.

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