Finance Minister Michael Noonan has said that the European Commission is expected next week to ease spending rules for Ireland and give the green light for an extra €1.5bn to be spent in future budgets.

The loosening of the purse strings would potentially allow the next government to spend at least €12bn on public services and tax cuts over a five-year term.

However, adjusted budgetary targets for Ireland would have to take into account any likely global risks. Mr Noonan has said a decision by Brussels to relax spending rules is based on his officials predicting Ireland will further repair the public finances.

In a letter to Fianna Fáil’s finance spokesman Michael McGrath over the weekend, he said Brussels was set to ease medium-term objective restrictions, or budgetary targets, in the coming days.

“Given the decline in the Irish debt ratio, and other factors, it is likely that the medium-term objective proposed by the commission for Ireland might be slightly less stringent than was previously the case. Officials in my department have estimated a structural deficit of -0.5% of GDP (rather than the current 0.0% of GDP) is more likely, but we will have to await the outcome of the technical discussions to be more definitive.”

Mr Noonan said Brussels would update its medium- term predictions for member states at the end of this month.

However, in the letter to Mr McGrath obtained by the Irish Examiner, he added: “While there are many moving parts, a decision to adopt a less stringent medium-term objective would add an estimated €1bn-€1.5bn to the indicate fiscal space over the period 2017 to 2021.”

The previous fiscal target, outlined in last October’s budget, allowed budgets to be increased by €8.8bn over five years. However, the extra spending, coupled with an increase in expected taxes, would widen that limit to €12bn.

Mr Noonan confirmed as much at Fine Gael’s weekend ard fheis, saying a five-year €12bn spend would be half of what Fianna Fail spent before the economic crash.

Mr McGrath however, warned election promises needed to take account of volatile changes to the global economy.

“While it is welcome that there may be additional scope for tax reductions and expenditure measures over the next five years, it is important that the incoming government proceed with caution. There are a number of potential serious risks facing the Irish economy including the upcoming British referendum and uncertainties in the global economy, particularly China.”


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