Further strong growth in the construction industry has set the scene for Finance Minister Paschal Donohoe’s summer update of the Government’s economic and fiscal targets later this week, the last before his first budget in October, but a renewed focus on tax and multinationals by France could sour the upbeat outlook.
The Ulster Bank index, which tracks purchasing managers in the construction industry, and which showed two of the three parts of the industry — commercial and housing — growing “rapidly” in June, and business confidence at a 10-month high, will boost confidence in a key part of the economy. The findings may also likely raise questions about whether the industry really needs any further substantial injections of taxpayers’ cash, as construction employers step up calls ahead of the budget for Mr Donohoe to increase spending on everything from intra-city and inner-city roads, rail and ports.
The Irish Fiscal Advisory Council (IFAC) and the Economic and Social Research Institute have in recent months separately warned about the construction industry sucking too many resources from the rest of the economy.
The Ulster Bank construction index nonetheless showed the rate of expansion slowed in June, albeit that the previous survey showed the industry was growing at near-record levels. The overall index dropped to 58.2 from 63.6 in May, for its lowest reading in four months, but in a survey where any reading above 50 means the industry is expanding, growth remains substantial.
“Over 60% of firms expect activity to increase over the coming year, which taken together with further sharp increases in new orders, suggests that near-term prospects for the sector remain very favourable, following a very strong first half of 2017,” said the bank’s chief economist, Simon Barry.
At a reading of 60.8, best of the three areas in June was commercial, still marking a “substantial” pace of growth, although down from a reading 65.2 in May. Housing, at 59.5, was down from May’s reading of 69.2. At 48.4, civil engineering was one of the three areas to contract in June.
Mr Donohoe will set out the Government’s latest forecasts later this week. These are important numbers which watchdogs like Seamus Coffey’s IFAC will scrutinise to assess the fiscal room available to Mr Donohoe for spending increases and tax cuts in his first budget. Ahead of the summer forecasts, IFAC was highly critical of what it described as the Government’s “minimalist approach” to meeting EU spending rules, and warned the Government would again breach the rules this year. It estimated the finance minister would have little to play with in October’s budget, which could be the last before a general election.
Under EU rules, most of the €1.8bn IFAC estimated was then available in so-called fiscal space was already accounted for. After extracting €600m to pay for demographic demands and €700m to take account of the “carryover” costs of commitments, autumn’s 2018 budget only allows for a net €500m in spending increases and tax cuts.
Mr Donohoe may also face a renewed assault from Europe over Ireland’s corporation tax haul and the many multinationals based here. Time has come for the EU to make multinationals, such as US giants Amazon, Facebook and Google, pay their fair share of taxes, the French finance minister said yesterday. “I can tell you that the times we live in are not for the weak,” Bruno Le Maire told a conference in the southern French city of Aix-en-Provence where many French and international executives gather every year.
“Since we have to deal with Mr Putin, Mr Trump or Mr Erdogan, it’s time for Europe to pull itself together and defend its own interests, to make Google, Amazon and Facebook pay the taxes they owe in Europe,” he said.
US companies such as Apple and Starbucks, that were recently ordered by the EU to pay back taxes to EU countries, have challenged their rulings. Fitch Ratings last week had warned again that Ireland’s GDP figures have been distorted by the activities of multinationals.
Additional reporting by Reuters
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