No scope for tax cuts before 2016, says fiscal council

John McHale said tax cuts, as suggested by Eamon Gilmore (pictured), were not possible during the Coalition's term

The Government’s Fiscal Advisory Council has slapped down Labour’s suggestion of tax cuts for families and warned there is no scope for such relief until at least 2016.

It also warned future budget targets for the remainder of the Coalition’s term should be rigidly followed.

Ruling out such cuts will dash the hopes of struggling families paying more through the universal social charge, property taxes, and who now face water charges.

Council chairman John McHale said he did not see scope in the next two years for tax adjustments. Only if economic growth shifted forward more could there be space for such changes and that would only be in 2016 or after, he said.

Speaking to the Oireachtas finance committee, he said the council was still in favour of the Coalition having an emergency credit line once Ireland exits the bailout.

The Government should have gone with a tougher budget for next year of €3.1bn, he reiterated, rather than the €2.5bn chosen in cuts and savings.

There was no room for tax cuts in the next two years, he told TDs.

“In terms of the room for tax cuts or expenditure increases, I don’t think there is room in Budget 2015. We believe that the current plan for €2bn in adjustments should be followed through on [for 2015].”

If growth came out as anticipated, there would be a neutral budget for 2016 and no need for additional measures, he said.

“We don’t see scope in the next year or two [for tax cuts] but if growth projections pan out as currently anticipated, there could well be scope after 2016.”

The comments dismiss any immediate hopes of tax cuts, as suggested by Labour.

Tánaiste Eamon Gilmore said at his party’s conference last week that the Coalition may “be able to relieve somewhat the burden of taxation on working people”.

Fiscal council chiefs clearly argued yesterday that no such relief is possible, at least before the last few month’s of this coalition’s lifetime.

Budget cuts for next year should also not have been reduced, Mr McHale said.

“The council remains of the view that the most appropriate policy for Budget 2014 was to continue with the previously planned adjustment of €3.1bn rather than the reduced amount of €2.5bn.”

Any upward growth projections in the economy should be used to safeguard against making sure Ireland reduced its deficit to 2.9% or less of GDP by 2015, he said.

TDs quizzed the council about the economic outlook in the coming years.

Mr McHale said Ireland should be “through the worst of it” after 2015. Recessions proved to be more persistent as evident from places like Japan, he said.

There could be more “negative surprises”, the committee were told and much would also depend on the outcome of the stress testing of banks next year. But a resurgent property market could help stability in the banks with more lending and increased consumer spending, it was added.

Labour TD Kevin Humphries asked about changes to people’s savings.

Mr McHale said that saving amounts would “come down” and this fall would boost consumption, the economy and therefor job creation. But future saving levels would not return to a pre-crisis level, he added.

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