Budget 2018 will have just €300m for new
The scope for expenditure increases and tax cuts in the next budget will be just €300 million, Minister for Finance Paschal Donohoe has indicated.
While the official fiscal space for Budget 2018 is €1.2 billion, some €900 million has effectively been spent on the carryover effects of the previous budget and the new public sector pay deal, which has still to be ratified by unions.
At a press briefing following the Government’s summer economic statement, Mr Donohoe declined to say whether the Coalition’s commitment to a two-to-one split in favour of spending over tax cuts would apply to the remaining €300 million, which would leave just €100 million for tax cuts.
However, he highlighted the importance of “looking at the totality” of Government spending, which would be in region of €60 billion, rather than the “incremental changes” each year.
He also outlined that the Government would prioritise “limited resources” in those areas where “needs are greatest”.
In the statement, which sets out the key elements of the Government’s economic strategy, Mr Donohoe said the Government now planned to commit only €500 million per year from 2019 to the so-called rainy day fund, half the amount that had been previously signalled.
The reduced allocation would help fund an additional €500 million in capital spending in each of the years 2019-2021.
This is in order to “further develop our economic and social infrastructure,” he said without indicating which projects would be prioritised.
The increase, which will “enhance the competitiveness and resilience of the Irish economy”, will result in gross voted capital of nearly €7.8 billion in 2021. That is 85 per cent higher than the outturn of €4.2 billion in 2016.
Former minister for finance Michael Noonan had indicated that the Government would set aside €1 billion each year for the new rainy day fund as a buffer against future shocks.
The Government will reduce the debt-to -GDP ratio until the 60 per cent legal threshold is achieved. Thereafter work will begin on reducing the ratio to 55 per cent of GDP.
Once major capital projects have been completed, the reduced rate of 45 per cent will be targeted. This is the rate that Michael Noonan had targeted when he was minister for finance.
“The economy is growing at a healthy pace and generating jobs-rich growth,” said Mr Donohoe. “Indeed, we are now approaching a situation in which jobs are available for all those who want them.
“Now is the time to build on the gains of recent years, to improve the resilience of the economy and to address the capacity constraints that are emerging.
“We live in an increasingly uncertain world and must plan accordingly. To this end, the Government will maintain a rainy day fund while at the same time increasing public investment.
“We will continue to reduce public debt in order to build up fiscal buffers. It is also important to make the taxation system more growth-friendly and the Government will continue to work in this area.”
The summer economic statement will be the first of a number of declarations on the subject ahead of the scheduled announcement in the winter of a 10-year capital investment programme.