Ibec: Donohoe has ample fiscal space

Finance Minister Paschal Donohoe has more than enough money to build schools and roads as well as to cut personal taxes but only if he throws off artificial fiscal constraints he is applying in his October budget, according to Ibec.

The business group says if the current EU fiscal rules are correctly applied Mr Donohoe will have €400 million in additional resources for his budget, and potentially €7bn more over the next four years. The budget submission comes amid growing concerns from a number of business groups that the Government will disappoint expectations by failing to fund a whole range of capital projects.

In recent weeks, Mr Donohoe has said he has around €300m in so-called fiscal space as he prepares for his first budget. Many economists believe the size of the package will increase significantly by budget day but will fall well short of the spending increases and tax cuts delivered in recent years. Ibec contends the finance minister is boxing himself in for no good reason.

By deflating and averaging out the exceptional GDP growth rate of more than 26% in 2015, the Government is spurning the opportunity under EU rules to fund sustainable increases in “badly needed” capital projects, argues Ibec director of policy and its chief economist, Fergal O’Brien. Such capital spending wouldn’t boost day-to-day spending and wouldn’t derail the economy in any future downturn.

“Particularly in the short term, it is going to be difficult in the current budgetary plans to find additional money for infrastructure,” said Mr O’Brien, implying projects such as providing services for sites for new homes will be held back.

“They have tied their hands behind the back” in terms of the resources available. It will be “an unnecessarily difficult budget and means we will have to postpone badly-needed capital spending,” he said.

On personal taxes, Ibec favours measures to make it harder to pay the top level of tax, but wants the USC left unchanged.

“We do not think it is prudent to use all that [money] into day-to-day-spending but it does make sense to invest that money into the productive side of the economy,” Ibec said.


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