Budget giveaway ‘would break rules’

The Coalition has been put on notice by fiscal watchdog the Irish Fiscal Advisory Council that its plans for a pre-election giveaway budget in October will break the EU’s strict debt-reduction rules.

The severe reprimand comes as analysts said that exchequer receipts published yesterday showing buoyant tax revenues for May mean that the Coalition is on course to collect a huge bounty of up to €2.5bn for giveaways in its October budget ahead of the election.

The Department of Finance laid out plans in April for an expansionary budget of €1.2bn, split evenly between tax cuts and spending increases.

However, Professor John McHale, chairman at IFAC — which was set up by statute at the height of the financial crisis — has warned that even a €1.2bn budget will fall foul of both the “letter and spirit” of EU budget strictures.

IFAC has only the power to offer advice, but its secret weapon is that it can decide not to endorse the Government’s budget sums when Minister for Finance Michael Noonan presents his pre-election budget in October.

The watchdog yesterday said that it had submitted its opinion to the Department of Finance. Professor McHale said that the Government is failing to reduce its underlying or structural budget deficit fast enough, and is also breaking the rule that forbids it relying on any bounty from one-off and unsustainable tax receipts or tax buoyancy to boost government spending.

Analysts say that exchequer figures published yesterday for the first five months to the end of May point to the Government securing a bounty of up to €2.5bn by the time of the budget.

“I’d be very much surprised if the budget leeway wasn’t well above €2bn and the link between taxes and GDP points to as much as €2.5bn,” said Austin Hughes, chief economist at KBC Bank Ireland.

Alan McQuaid, chief economist at Merrion Capital, predicted that the Coalition would present a budget in October that offered a package well over €1.2bn in tax cuts and spending increases projected by the Department of Finance.

Overall, the Government collected tax revenues of over €17.28bn to the end of May, up 10.9% in the year.

The Government collected €734m more in tax receipts than it had expected at this stage in the year.