Minster Donohoe to resist spending €3.2bn

Minister Paschal Donohoe

The Government looks set to resist mounting political pressures to spend the full €3.2bn available to it in October’s budget.

Finance Minister Paschal Donohoe is likely to implement measures in a bid to avoid the economy overheating.

Today, the Cabinet is set to agree a summer economic statement (SES) which will outline the deficit the Government’s plans to target next year and the budgetary package that will accommodate reaching that target.

However, the Irish Examiner has learnt that Mr Donohoe will eschew the ability to use the full amount of so-called fiscal space as it is deemed to not be “appropriate” given how strong economic growth is at present.

In recent weeks, various bodies including the International Monetary Fund (IMF) and the Irish Fiscal Advisory Council (IFAC) have warned about the danger of the economy overheating.

The European Commission put economic growth at 7.3% for 2017 as the economy expanded at a “solid pace”, supported mainly by domestic activity. This was up from 4.8% rate of growth predicted in the commission’s autumn economic forecast and marks the fastest growth rate in the EU for 2017.

Taoiseach Leo Varadkar said the Government is seeking to avoid the mistakes of the past, and seek to reduce down debt.

Minister Donohoe will deal with that in detail tomorrow and also in the Dail,” he said. “The general principle we will be applying is that no matter what the fiscal rules may be, it is just common sense and good housekeeping that next year we’d keep reducing the deficit and not increase borrowing. Because at the current stage we are at in our economic cycle, more borrowing and a bigger deficit and a bigger debt does not make sense. We don’t want repeat the mistakes of the past.

Asked if the total envelope of spending is still at the €3.2bn level, he said it is, but issued a heavy caveat on it.

“It is, yeah, in that ball-park, but a lot of it is already committed, as you know,” he said.

The Government will instead frame budgetary policy to reduce borrowing and support steady and sustainable improvements in employment and living standards, it is understood. Mr Donohoe is to say his goal is to position the economy to minimise risk and maximise opportunity.

“We are being prudent to ensure we are able to manage risk so that we can continue to improve living standards, improve public services, invest in the future and deliver lasting prosperity,” he will say.

The SES will identify a fiscal space framework, as has been the case in previous years. Within this framework, it will identify the economic and fiscal consequences of different levels of expenditure and taxation. This will shape the decision being made by the Government on what the appropriate budgetary stance is for the country for 2019.

Of the €3.2bn overall envelope, €2.6bn has already been pre-committed to expenditure measures.

“We must be careful to base spending commitments on sustainable revenue. That is why we are setting aside some of the historically high levels of corporation tax for the purpose of creating the rainy day fund,” Mr Donohoe will say.

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