BUDGET 2016: Budget will pass EU test, ministers say

Senior Coalition figures are confident the budget will pass a crucial EU test despite financial advisory chiefs warning the spending plans are too expansionary, and that the money should not be injected into the economy.

Both Finance Minister Michael Noonan and Public Expenditure Minister Brendan Howlin said the €1.5bn 2016 budget would fall within EU guidelines even though the same amount is being pumped into spending this year.

Fiscal advisory council chief John McHale had intervened directly after the Coalition’s budget and claimed it had “echoes of mistakes we have made in the past”.

Mr McHale had said he was surprised by the extent of the supplementary estimates announced on the weekend which would be on top of the council’s original assessment of the budget.

He said: “Given the growth in the economy, it now looks too expansionary.... the right approach would have been to use the revenue windfall to bring the deficit down further.

“It very much changes the fiscal status, it completely undermines the expenditure ceilings and gives a boost to the economy that it really doesn’t need given the very high growth rates at the moment,” he added.

The fiscal chief later revised his position saying budget projections agreed this year require a 0.6% improvement of GDP or cut in the deficit, as opposed to the 1% of GDP which he had originally mentioned during an RTÉ radio interview.

The European Commission by yesterday evening had also confirmed that the required deficit cut is the same as the Coalition projected in the budget, Mr McHale added. The position suggests the spending figures are expected to be in line with the EU’s stability and growth pact.

The ESRI also expressed caution about overheating the economy with the giveaway budget. It suggested the economy was growing so strongly that there was not a case for injecting cash into it.

But ministers stood firmly behind their spending plans for next year, which many believe was an attempt to woo voters with sweeteners and tax breaks.

These include sweeping reductions in the Universal Social Charge, which could save some high-income earners over €900 a year, increases in the state pension and child benefit, and extra free pre-school hours.

Mr Noonan said he agreed in principle with the fiscal council’s points but that all these had been incorporated into the budget. He rejected any suggestion of taking too many risks.

He said that the Government had consulted with Brussels in the lead-up to the budget, but that EU officials had said the 2016 spending plans as well as reductions to cut the deficit were within its guidelines.

Mr Howlin said it was the job of the fiscal council to be ultra prudent.