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Ireland May Decide To Build Fiscal Buffers In Next Budget

by Jason Gorringe,, London

28 December 2017

"It is not a given" that the Irish Government will choose to spend all of the money at its disposal when it comes to preparing the next Budget, Finance Minister Paschal Donohoe has said.

Donohoe made the comment during an interview with the Financial Times.

The paper reported that Donohoe "said he was willing to raise taxes or forgo anticipated tax cuts to damp down any price or wage pressure." He also said that he would ensure that government spending "doesn't accelerate economic overheating."

Donohoe's decisions would be colored by the impact of Brexit on the Irish economy. He said: "We would be the worst affected of any member state of the EU and this is why we need to take real care about long-term spending decisions."

On this front, Donohoe explained that, "As additional budgetary resources become available, it's not a given that we should have to spend all this money. We need to make decisions to strengthen the long-term resilience of the Irish economy and how we deal with opportunities for structural reform and for reducing our debt levels are equally valid uses of such money."

The political agreement on which the minority Fine Gael administration was returned to power last year established a ratio of 2:1 for the allocation of any fiscal space between public spending increases and tax cuts, respectively. Budget 2018 introduced income tax cuts worth EUR335m (USD398.7m).

Donohoe's comments were echoed by Prime Minister Leo Varadkar. He told reporters that "If the economy continues to grow at the rate it is growing now, I think we would have to consider not spending all of the resources available to us." He added that the Government could afford to make further changes to income tax and the Universal Social Charge, but "whether it is prudent to do so is a different question."

The Government is expected to have around EUR2bn available for spending increases and a further EUR1bn for tax cuts. Varadkar said that he was "not certain" that the entirety of this money would be used for tax cuts. The focus for Budget 2019, in terms of tax, will however, "be similar to what it was last year."

"What we do spend will be spent primarily on services and infrastructure with the lesser part, a third or less, going to tax reductions and tax relief, particularly for middle-income earners," he explained.

TAGS: tax | Ireland | budget | ministry of finance | tax rates | social security | tax reform | individual income tax | services

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