Budget 2017: Brussels to cast a cold eye upon €1.3bn of ‘fiscal space’
The Government estimates it has €11.3bn to play with between 2017 and 2021 — what it calls ‘fiscal space’ for tax cuts and spending hikes — €1.3bn of which is to be spent next year. However, the EU says a lot of that money may be eaten up by the maintenance of basic public services and by pressure from unions to restore public pay packets after the crisis.
It has also warned that tax revenues may not be as buoyant as last year, when the corporate tax take surged on the back of a glut of multinationals moving their patents and operations to Ireland.
“These calls for expansionary measures by various political forces and stakeholders would most likely have a negative impact on public finances, as it cannot be assumed that revenue out-performance will continue and discretionary changes to expenditure ceilings remain a feature of the Irish budget process,” the commission said in its most recent post-bailout report on the economy.
The half-percent cuts to the three lowest rates of universal social charge, along with income tax credits for the self-employed, fishermen and carers, are likely to raise eyebrows at the commission.
It has said a USC cut “contrasts with the commitment to maintain a broad tax base” — code for taking more people into the tax net. It has also called out the Government’s “inability to control expenditure in health” and said changes to the structure of Irish Water could be costly. All of this will leave little extra money for transport, housing, schools and hospitals, the EU has said.
That is because EU rules hold that countries must cut their underlying budget deficits by at least 0.5% of GDP a year and keep spending in line with economic growth. Last year, the EU called out the Government for its €1.5bn in supplementary spending, which it said risked breaching the bloc’s budget rules.
The rules allow large spending hikes only if they are offset by tax increases but Minister for Finance Michael Noonan’s sole tax rise this year is the increase in tobacco. So even the massive GDP surge last year or a potential tax windfall from Apple in the future will not hand the Government a blank cheque.
The Irish Business Employers’ Confederation had urged the Government to lobby the EU, like Italy has done, for more flexibility to spend on major infrastructure projects.
Fine Gael MEP Brian Hayes told the Irish Examiner: “There needs to be special conditionality for countries that have come out of a financial assistance programme to build up investment again.
“Some of the commission’s pronouncements about the Irish economy are really completely lacking in understanding of what has happened in Ireland.”
