Opposition claims Fine Gael and Labour figures on the economy just don’t add up

The Government parties are under pressure to explain “grossly over-estimated figures” before the election campaign has even started.
Opposition claims Fine Gael and Labour figures on the economy just don’t add up

Economists and opposition politicians have moved to discredit the figures put forward by Fine Gael and Labour by claiming they do not add up.

Taoiseach Enda Kenny is due to announce the general election date today.

However, Fine Gael and Labour have been accused of producing inaccurate estimates ahead of this.

Both Government parties claim there will be around €12bn surplus finances over the next five years.

However, the Irish Fiscal Advisory Council (IFAC) has warned that the Government may be overestimating and “auctioning off” the amount of ‘fiscal space’ available in the coming years.

IFAC chairman John McHale last week warned more money will be needed due to demographics and inflation and as a result the free fiscal space drops quite sharply to about €3.2bn.

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Trinity College Dublin economist Constantin Gurdgiev yesterday put the short-term figure at around €4bn but said it is very hard to determine beyond 2017. He said the Government should be avoiding “unsustainable and/ or highly risky, permanent increases in public expenditure”.

Sinn Féin’s finance spokesman, Pearse Doherty, said the projections “simply don’t stand up to scrutiny”.

Fine Gael, which is using the figure of €12bn fiscal space to draw up its taxation cuts and spending increases, has promised to phase out the USC and will introduce a rainy day fund of €2.5bn.

Finance Minister Michael Noonan said abolishing USC would cost €4bn in gross terms, but this would be offset by a clawback on salaries of more than €100,000.

Labour are also basing their promises on a projected €12bn fiscal space. Labour would allocate 75% of this money to public services with the balance on tax reductions, including plans to abolish USC for people earning up to €72,000 over five years. It also also hinted at a rainy day fund but has yet to put a figure on this.

The Department of Finance has estimated that ‘gross fiscal space’ available between 2017 and 2021 will be €10.9bn but the calculation for ‘net fiscal space’ in the same period is €8.6bn.

Dr Gurdgiev said: “Beyond 2017, the visibility of fiscal dynamics changes due to expected normalisation in interest rates and government debt yields, as well as looming uncertainty about the direction of global economic growth.

“This means not only the political parties grossly over-estimate the size of the fiscal space available to the state, but it also means the short-term balances available for tax and spending policies improvements in the short term should be carefully targeted to avoid creating unsustainable and/or highly risky, permanent increases in public expenditure.”

Fianna Fáil said it would allow for “considerable headroom” below the €12bn touted by other parties.

“The final number is being worked on at the moment but it will be less than €10bn,” said a Fianna Fáil spokesman.

Sinn Féin is basing its estimates on the €8.6bn department figure.

A Fine Gael spokesman said: “Fianna Fáil and others opposed all of our policy measures which have delivered the growth in the economy to date, driving the economic recovery and generating this fiscal space. But we cannot take this recovery for granted.

A Labour spokesman said its €12bn figure includes €8.6bn ‘net space’ identified by the Department of Finance, the additional €2bn available for discretionary revenue measures arising from taxation growth related to earnings, and the €1.5bn impact of the revision to the medium-term objective under the fiscal rules as set out by the Department of Finance.

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