EU issues warning on Ireland’s reliance on corporate tax revenues

Finance Minister Michael Noonan’s Budget 2017 has passed muster with the European Commission but Ireland has been warned again about the State relying on the one-off bounty from booming corporate tax revenues.

EU issues warning on Ireland’s reliance on corporate tax revenues

The commission said yesterday that Ireland’s budget was “broadly compliant” with EU budget rules.

However, it warned that spending increases and tax cuts are being funded by “volatile” corporate tax receipts, leaving the budget vulnerable to over-runs.

While the potential breach is not serious and will not incur penalties, the EU has advised the government to use any windfall gains to pay down the national debt.

Notably, its assessment did not take into account the recent garda pay deal or any successor to the Lansdowne Road public pay agreement.

The warning, however, falls short of the sharp rebuke made by the Irish Fiscal Advisory Council immediately after Mr Noonan unveiled a larger-than-expected budget package of spending rises and tax cuts last month.

The watchdog is likely to eviscerate the spending plans when it publishes its full assessment on the budget at the end of the month.

Only five eurozone countries were found to be fully compliant with EU budget rules — Germany, Estonia, Luxembourg, Slovakia and the Netherlands.

Eight countries were found to be at risk of breaching the rules, including Italy, Belgium and Cyprus.

Spain and Portugal, which escaped deficit fines this summer, were also spared an EU funding freeze after making extra efforts to cut spending.

And France, which the EU said was “broadly compliant” with its budget targets, was warned against any giveaway budgets following the presidential election next year.

The commission was given new budget powers during the crisis, including the right to automatically fine eurozone countries for breaching debt and deficit limits.

However, yesterday, the EU executive took its role even further, styling itself as a eurozone finance ministry.

While asking for restraint from cash-strapped states, it told the 19-member single currency zone to enact a collective fiscal stimulus worth €50bn, equivalent to 0.5% of GDP, in 2017.

The unprecedented move reverses the course on the austerity policies pursued during the crisis, in a bid to boost sluggish eurozone growth and to slash unemployment.

“Today is an important moment,” said economics commissioner Pierre Moscovici.

“The commission is, in effect, acting as a finance minister for the euro area — a collective minister,” Mr Moscovici said.

“What we want to do is to provide 19 member states with an overall target, striking a balance between supporting growth — which is the commission’s political priority — and, on the other hand, compliance with the rules, which is our legal obligation,” he said.

It is also a response to the uncertainty created by the UK’s vote to leave the EU, which has led the bloc to lower its growth forecast for next year.

Eurogroup president and Dutch finance minister Jeroen Dijsselbloem said that Brexit negotiations were complex and would take longer than the two years provided for under EU law.

Britain has said it will trigger an exit under Article 50 of the Lisbon Treaty by the end of March.

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