Only €500m for next finance minister's budget

Seamus Coffey, chairman of the Irish Fiscal Advisory Council
Seamus Coffey, chairman of the Irish Fiscal Advisory Council

The head of the country’s budget watchdog said the next finance minister has little to spend in October’s budget if Ireland wants to keep with the EU oversight rules.

And warning about the way the Government has spent huge one-off tax bounties in the past — including spending a surge in corporate tax revenues — Seamus Coffey, the new chairman of the Irish Fiscal Advisory Council (IFAC) warned the potential €3bn in proceeds from the sale of shares in AIB should go to pay down debt and not be used to pump up levels of spending further.

It was Mr Coffey’s first presentation of the watchdog’s bulletin since he took over earlier this year from John McHale, who was the first chairman of the watchdog since it was set up to prevent the re-occurrence of the conditions that led to the financial crash.

Some opposition parties have called on the Government to forego paying down the national debt more quickly and use a potential windfall of over €3bn from the part-privatisation of AIB to alleviate the housing crisis. Many business and industry groups have separately called for large increases in capital spending on roads, rail and schools.

However, the watchdog warned the Government’s “minimalist approach” to the EU rules had led to it breaching the ceiling in 2016, though not by a significant amount to trigger sanctions from Brussels. Government plans this year will likely result in a further breach, IFAC said.

Based on Department of Finance estimates, the watchdog numbers suggest that the successor to outgoing Finance Minister Michael Noonan will have little to play with in October’s budget.

The budget could be the last before the Coalition calls an election. Under EU rules, most of the €1.8bn IFAC estimates is available in so-called fiscal space to the next finance minister is already accounted for.

After extracting €600m to pay for demographic demands of a growing population and €700m to take account of the “carryover” costs of commitments in previous years, the autumn’s 2018 budget only allows for a net €500m in spending increases and tax cuts.

Mr Coffey said the exchequer returns reporting the latest tax revenues and spending should have no bearing on the resources the Government has for additional spending or tax cuts.

IFAC also returned to focus on the consequences of Mr Noonan having spent the proceeds of a corporate tax revenue boom in 2015 when he announced €1.5bn in extra spending on the eve of the 2016 budget.

It reiterated that the technical treatment of the AIB preference shares on the Government books in 2015 had the effect of increasing the base effect on overall spending in subsequent years. Since 2015, improvements in the health of the public finances have slowed, it said. Saying that the recovery was strong enough, IFAC warned that any further boost by spending or tax cuts was “unwarranted”.


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