Focus on ‘fixing finances’ and not ‘giveaway budgets’

The Government must remain focussed on the goal of repairing the public finances in the budget, the Irish Fiscal Advisory Council has stressed.

Any premature easing in fixing the public finances could instead result in more cutbacks down the line, the council warned in its pre-budget statement.

The message is a warning to the Coalition to avoid any costly giveaway measures in the budget for recession-hit workers or families.

The Coalition is considering a combination of measures to reduce tax for low and middle-income earners. A cut in the higher 41% tax rate is also being considered.

Taoiseach Enda Kenny signalled last week that three consecutive years of tax cuts are on the cards. However, the fiscal council’s statement is a reminder for Fine Gael and Labour to remain focused in their first post-bailout budget.

It said: “In the past, Ireland’s fiscal policy has shown an unfortunate tendency to contribute to boom and bust economic cycles that harmed the economy and have had very negative social consequences. We are now entering a crucial period for breaking this pattern. Fiscal policy must remain focused on the goal of repairing the public finances, even in the face of short-term improvements in key indicators.”

Finance Minister Michael Noonan last week said economic growth could reach 4.5% this year. Earlier this year, it was predicted at 2%.

The council says the data means Ireland can “comfortably” meet its target to reduce the deficit to 3% of GDP with a €2bn adjustment. However, it also says Government spending is likely to exceed revenue by around €7bn this year and the overall level of debt is five times higher than at the start of the financial crisis.

Furthermore, it says any slowdown in fixing the finances could hit the next generation: “A premature easing in fiscal adjustment now would increase the risk of additional consolidation being necessary in future.”

Cost pressures and demographic changes will still make future budgets difficult, the council warns.

A “prudent” budget would instead send out a strong signal internationally, it said.

Jobs Minister Richard Bruton yesterday said the Coalition was focused on a range of tax reforms after reports that Mr Kenny wants to prioritise a cut in the higher rate of tax.

“There’s been no question that the reforms are going to be confined to any one group,” Mr Bruton told RTÉ as he warned against any “rush of blood to the head” decisions.