Friday 21 October 2016

Budget 2016: European Commission warns any extra revenues be used to cut debt

Published 13/05/2015 | 13:57

Michael Noonan TD has said the Government wanted a low-key campaign in the same-sex marriage referendum (Gareth Chaney Collins)
Michael Noonan TD has said the Government wanted a low-key campaign in the same-sex marriage referendum (Gareth Chaney Collins)

The European Commission has dropped an official recommendation that the Government slash the cost of legal proceedings and make the legal sector here more efficient.

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High costs and the need for reform of the legal profession and other “sheltered sectors” of the economy had long been a bug-bear of the Troika during the bailout.

The long-delayed Legal Services Bill, introduced in 2011, has still not been enacted.

But the Commission’s so-called country specific recommendations for Ireland, published today, focus on four key areas only, including deficit and debt reduction, health costs, jobs and mortgages. 

While Brussels notes that legal costs remain high here, and it signalled that they could affect the state’s competitiveness, the call to reduce them is not included among its recommendations.

Instead, it states that officials will continue to “monitor progress in this area.”

The Commission published seven recommendations last year for Ireland. it is understood the reduced number this year reflects a drive by new Commission President Jean-Claude Juncker to have a more focused approach on the major economic and fiscal issues facing a country.

The Commission also warns that Ireland is at risk of breaching crucial EU rules designed to prevent member state economies from overheating.

And it accused Ireland of not setting out in sufficient detail what measures it plans to take to meet targets required under the so-called preventive arm of the Stability and Growth Pact (SGP).

Budget 2016 will be the first Budget designed under the preventive arm of the SGP, which is aimed at preventing fiscal policies from causing economies to overheat.

In its Spring Statement, published last month, the Government unveiled its pitch of €1.5bn of tax cuts and additional spending measures to voters ahead of the next general election.

Finance Minister Michael Noonan pledged to cut income tax and the Universal Social Charge for workers and lure emigrants home with more favourable tax measures.

But the Commission document warned that following its assessment of forecasts published as part of the Spring Statement, and taking into account the Commission’s own projections, “there is a risk that Ireland will not comply with the provisions of the Stability and Growth Pact.”

Brussels set out four recommendations that it sees as important in protecting the national finances.

These include ensuring that any extra revenue collected this year should be put towards paying down debt and narrowing the deficit at a quicker pace, and to broaden the tax net, including on VAT.

The Commission also noted that zero and reduced rates for VAT make the tax base less efficient than the EU average, signalling it has concerns about the lower rate of VAT for the hospitality industry.

The Commission also recommended measures to cut spending on patented medicines, increase the work intensity of households by tapering the withdrawal of benefits and providing better access to affordable, full-time childcare, and finalise mortgage restructuring solutions by the end of this year.

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