Due for publication later this month, the EU Commission report has raised serious, sustained and repeated concerns about the direction of the budget, which it deemed to be “pro-cyclical”.
- The “recovery is threatened by recent decisions which affect the path to sustainable budgetary position”.
- The commission says “those decisions were influenced by the current political context”, ie the pending general election.
- While the budget is “broadly compliant” with EU fiscal rules, there are risks of some deviation from the appropriate adjustment path, they say.
- That improved tax revenues are driven by “better than expected if volatile corporate tax receipts”, while increases in spending were permanent.
- Budget 2016 “could have been more supportive of growth”.
- On the spending side, the commission concludes that raising public sector pay and increasing a range of social welfare payments “could have been better targeted”.
- The commission says reducing the USC and postponing the self-assessing of property values “undermines the sustainability of revenue in the medium term”.
This is the fourth ‘Post-Programme Surveillance Report’ which is produced by the commission in conjunction with the European Central Bank (ECB).
Several times in the report, the EU Commission has expressed concerns about the budget’s “pro-cyclical” make-up, meaning there was no need for the giveaway as the economy was already growing strongly.
The Government has also been criticised for not using the budget to help more women enter or re-enter the workforce, as Ireland lags behind other European countries in this regard.
“On the revenue side, it would have been desirable to target increasing labour market participation of women,” the report says.
The commission also urged the Government to use growth windfalls to accelerate debt reduction, which would have made Ireland less vulnerable to future economic shocks.
It also voiced concerns about the relaxing of building standards and tax breaks to developers, saying they need to be “closely monitored”.
The strong warnings from European authorities echo concerns raised about the direction of the budget expressed by the Irish Fiscal Advisory Council in October.
“There are questions over fiscal compliance from a European and domestic perspective,” IFAC chairman John McHale said, warning the budget was too expansionary.
In response, a spokesman for the Department of Finance said it welcomed the positive findings in the commission report.
Mr Noonan’s department said the position on the public finances has improved even further since Budget 2016 was announced.
The spokesman also sought to point out that the chairman of the Revenue Commissioners has confirmed that the current level of corporation tax receipts is sustainable.