EU urges Ireland to do more to reduce budget deficit

The EU has asked Ireland to do more to reduce its budget deficit this year, while holding off on taking Spain, Portugal and Italy to task for budget overruns.

Despite officially removing Ireland from a list of countries requiring extra surveillance under the “excessive deficit procedure”, the Commission said a 2016 budget target is in doubt because of health overspending and tax cuts.

Ireland’s overall deficit was 2.3% of GDP last year, below the EU’s 3% limit, but the Government still needs to meet a structural deficit target of 0.5% of GDP in 2018 (which strips out cyclical swings and one-offs such as bank bailouts).

The 2018 target is not in doubt, but the EU said the overrun in 2016 meant the Government will have to make further cuts or raise taxes to compensate.

“There is a risk of some deviation from the recommended fiscal adjustment in 2016,” the Commission said yesterday in its annual economic policy recommendations for Ireland.

“Further measures will be needed to ensure compliance in 2016.”

Healthcare is one problem, the Commission said, where “cost-effectiveness, equal access and sustainability remain critical challenges”, as well as the high cost of drugs.

The programme for government promises to cut prescription costs while boosting the health budget.

The Commission also focused its criticism on recent tax cuts, saying the Government needs to “broaden the tax base” and has room for a VAT increase.

Brussels said the extra fiscal space was needed to remedy persistent under-investment in public transport, water and housing.

It also highlighted remaining problems in the banks, particularly non-performing SME loans.

The Department of Finance said it is working off different figures from the Commission, but reiterated its “commitment to deliver compliance with the fiscal rules”.

Meanwhile, EU economics chief Pierre Moscovici said it was “not the right moment, economically or politically” to demand more of Portugal or Spain, who have each been given an extra year to meet their deficit targets, as long as they announce extra savings by July.

Both countries held recent elections, with Spain facing a repeat vote in June.


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