Like two bold school boys, Michael Noonan and Brendan Howlin have just had their knuckles rapped quite severely by their European overlords for last October’s giveaway budget, which they deemed to be politically motivated.
Having been rebuked by the Irish Fiscal Advisory Council for pouring needless fuel on an already booming economy, the two ministers have now drawn the ire of the European Commission for their splurge.
In layman’s terms, the commission has put the boot in on the Government for putting the recovery at risk in order to buy the election.
As tax revenues ran way over target, ultimately €3bn ahead of target, Mr Noonan and Mr Howlin decided to abandon the prudence and caution which had been the hallmark of their time in office in favour of a naked attempt to bribe the votes which they need to retake office next month.
The commission’s fourth ‘Post-Programme Surveillance Report — Ireland’ while acknowledging the strong growth in the economy, clearly and repeatedly raises serious concerns about Mr Noonan and Mr Howlin’s Budget 2016.
The commission says the recovery is threatened by “recent decisions which affect the path to sustainable budgetary position”.
It goes on to say those “recent fiscal policy decisions are influenced by the current political context”. In other words, the general election drove the policy decisions that formed the budget.
Of greater concern, the commission warns that the €1.5bn giveaway budget was financed “by very strong but generally volatile corporate taxes”.
It says at best, the budget was “broadly compliant” with EU fiscal rules but warns that “there are risks of some deviation from the appropriate adjustment path”.
The report from the commission goes on to say that Budget 2016 could have been more supportive of growth and would have been better at “targeting increasing labour market participation of women”.
The commission has also raised concern at the ministers’ decision to reduce the universal social charge in the manner they did, as well as Mr Noonan’s decision to postpone the self-assessing of property values until 2019.
The commission feels these decisions bring into question the sustainability of tax revenue in the medium term.
Mr Howlin has also come in for criticism over his quest to restore public sector pay as well as loosening the purse strings on social welfare increases.
“On the spending side, raising public sector pay and increasing a wide range of social welfare payments could have been better targeted,” the commission report states.
The report, which is due for publication later this month, argues strongly that the Government should have used the extra cash to reduce Ireland’s very high levels of debt. This, the commission argues, would have made Ireland less vulnerable to future economic shocks.
Several times in the report, concerns are raised about the budget placing the economy at risk because of its decidedly “pro-cyclical” make-up.
The Department of Finance last night sought to play up the positive aspects of the report but there is no escaping the bottom line of the commission’s report.
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