The Government expects an extra €1bn will be available to spend on services and tax cuts next year but is prepared to scale back growth projections if Britain votes to leave the EU.
Commitments are still in place to phase out the universal social charge over the next five years, Finance Minister Michael Noonan said, although reductions will be clawed back for higher earners.
A “rainy day fund” to help any volatility in the economy of around €1bn a year will also be made available to use every year between 2019 and 2021, the Cabinet agreed.
The announcements were made as part of the summer economic statement, published yesterday.
It sets out the blueprint for next year’s budget and at this stage projects that there will be an extra €1bn in fiscal space next year. This is due to projected growth in the economy, officials say.
Mr Noonan said the economy was making “very strong progress” and would grow by 5% this year and up to 4% next year.
The Government needs to remain “prudent” and have planned for a €3bn rainy day fund to be spent for three years from 2019.
Separately, Public Expenditure Minister Paschal Donohoe outlined how an extra €1bn would be available for capital spending next year, meaning €5bn would be there for the next five years.
Departments and organisations, particularly acute hospitals, needed to be conscious of staying within their budgets, he said.
Extra capital spending would help address deficiencies in schools, hospitals and transport, he said.
Mr Noonan was also asked about the what effects a Brexit would have on the Irish economy.
He referred to figures in the economic statement, compiled by the ESRI, which predict that growth could be reduced by between 0.5% and 1.6% in the years ahead if Brexit goes ahead. This meant that economic projections were “moveable”, depending on what the outcome is this week in Britain.
Officials in Government openly say a Leave vote will be a “shock” to the Irish economy. Asked if he would stay a full five years as minister and whether the Government would equally last as long, Mr Noonan said he had “signed up” for government and we’ll “see what happens”.
“Nobody has an idea how long it [the minority government] will last.”
He pointed out that the confidence agreement with Fianna Fáil was set to last three years, after which it will be reviewed.
The minister also reiterated a Fine Gael election promise to scrap USC by 2021. Further reductions will be made to the charge for next year for lower and middle income earners.
Overall though, USC savings for higher earners, possibly on salaries in excess of €70,000, will be clawed back, he added.
“There will not be pro-rate decreases for higher earners,” he added.
The Government also said the budget next year would be split with two thirds going on services and a third on tax cuts.
Fianna Fáil Public Expenditure spokesman Dara Calleary described the economic statement as devoid of consideration of the “potentially massive impact” of Britain voting to leave the EU.
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