Noonan shoots down Ibec call to bend EU fiscal rules
Breaking strict EU fiscal rules to spend more on capital investment could lead to financial penalties and potentially bar Ireland from getting structural funds, Finance Minister Michael Noonan has said.
The minister said fines could amount to up to 0.2pc of the value of the economy.
He was responding to an argument from Ibec chief economist Fergal O'Brien in the Irish Independent Business Week yesterday that if Ireland can't get extra leeway from Europe for vital spending in areas like social housing, the Government should consider defying the rules and ask for forgiveness later.
But Mr Noonan said this was not the way to go.
"It's not good advice to break the rules. Spain and Portugal are in breach of rules this week and they're opening themselves to sanctions that would range from 0pc to 0.2pc of GDP, which is a big chunk of money," the minister said.
"As well as that, the tap on structural funds can be turned off."
Ibec said the rules, which are laid down by the European Commission to ensure prudent and stable public finances, should be adhered to for day-to-day government spending and taxation. But the organisation claimed they don't make sense in the Irish case in terms of capital investment, describing them as "unnecessary" and "inappropriate".
Fergal O'Brien, Ibec chief economist, said the Government needs to take a renewed case to Brussels for flexibility.
But he said if that fails, we should defy the rules and spend what is required, particularly in dealing with the deficit in social housing. He said €1bn should be spent outside the fiscal rules for social housing next year. "In the context of everything that's happening in the global economy, maybe we should go and do that and ask for forgiveness. Particularly on social housing," Mr O'Brien told the Irish Independent.
At the launch of the National Treasury Management Agency's (NTMA) annual report, Mr Noonan said he is negotiating in Brussels to get extra flexibility to invest and to be able to make greater use of public private partnerships.
"We're making some progress," he said. Under the EU's Stability and Growth Pact (SGP), countries are obliged to adhere to strict debt and deficit targets set by the Commission. Ireland has moved from the corrective arm of the SGP, to the preventive arm, thereby freeing up more so-called fiscal space for spending.
The Commission has already agreed to a loosening of the rules in Ireland's case, which Finance Minister Michael Noonan has said results in an additional €1.5bn becoming available in fiscal space. But in its Budget 2017 submission, Ibec argues that far too little is being put into investment.
Ibec also said the Government needs to realise that Budget 2017 will be the "first meaningful policy lever" that the Government is going to pull in terms of reaction to the Brexit vote.
The lobby group said the Budget should also deliver a major overhaul to our personal and business tax offering.
"Yes, we need to cooperate with the UK on areas of mutual interest, but we also must compete agressively in areas where we need to stay ahead," said Ibec chief Danny McCoy.
"We need to stay competitive and keep business costs under control."