Finance Minister Paschal Donohoe is to press ahead with ambitious additional spending plans for 2018, despite strong concerns being voiced about the credibility of his figures.
The publication of his summer economic statement —which confirmed he intends to introduce about €350m worth of new tax cuts and spending increases in October’s budget — has drawn stinging criticism from Labour leader and former public expenditure minister Brendan Howlin, who dismissed Mr Donohoe’s figures as “nonsense”.
Mr Donohoe confirmed that he intends to reduce by half the amount of money the Government will invest into a rainy day fund, as well as loosening the debt targets to allow for more capital spending.
However, the chair of the Irish Fiscal Advisory Council (IFAC), Seamus Coffey, speaking to the Irish Examiner, expressed concerns about Mr Donohoe’s plans to inject €500m, instead of an original plan for €1bn, into a rainy day fund from 2019.
He said the €1bn a year would have been effective in safeguarding the economy from potentially overheating in the coming years. “In any contra-cyclical policy, a rainy day fund is part of that policy. It is not clear from the limited proposals for an Irish rainy day fund that it is in line with an effective contra-cyclical policy.”
Mr Coffey also expressed concern at the fact that the Government breached EU spending rules in 2016 and was heading for “a planned breach” this year too.
Mr Coffey did welcome the commitment by Mr Donohoe to stick to EU spending rules but has said that the finance minister has little room to go beyond his opening estimate for a €500m package in tax cuts and spending increases in his first budget in October, without significantly increasing taxes or curtailing spending in other areas.
“IFAC is happy that the Government is giving a commitment to adhere to the fiscal rules and that there can be no more need for a fiscal stimulus,” Mr Coffey said.
Speaking to the Irish Examiner last night, Mr Howlin said Mr Donohoe’s numbers contained in the statement booklet do not stack up.
He pointed to a line contained in Mr Donohoe’s document which shows the minister is allowing for €140m in additional current spending next year but “does not account for €180m in additional costs from the extension of the Lansdowne Road Agreement”.
Mr Howlin said: “There is €140m available for current spending, but this is not accounting for €180m already committed on public sector pay? Not doable. Nowhere near it.
“Maintaining the pretence of €220m for tax cuts in that context is ridiculous. The Government should accept there’s no space for tax cuts this year.”
Responding to Mr Howlin’s criticisms, Mr Donohoe suggested the Labour leader was incorrect in reading the numbers.
Speaking to the Irish Examiner, Mr Donohoe said he is confident he has struck the right balance between prudent management of the economy and also delivering the much needed increase in spending, which many people want.
“We have unallocated resources of about €500m for next year and the pay deal will cost if ratified about €180m, which leaves around €320m,” he said.
Mr Donohoe said the Government is engaging with the European Commission as to how to treat the issue of water charges and what impact refunding the charges will have on the budget numbers for 2018.
Mr Donohoe highlighted the importance of “looking at the totality” of Government spending, which would be in region of €60bn next year, rather than the “incremental changes” each year.
He said the Government would prioritise “limited resources” in those areas where “needs are greatest”.
Mr Donohoe’s plans for a so-called net fiscal space in his October budget of only €350m will make it one of the smallest budget packages since the end of austerity, but that only comes after the spending base was significantly raised in the last two budgets by his predecessor, Michael Noonan.
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