Monday 5 December 2016

Honohan warned Government not to use surplus to cut tax

Published 15/06/2015 | 02:30

Central Bank Governor Patrick Honohan
Central Bank Governor Patrick Honohan

Central Bank Governor Patrick Honohan warned the Government last year that spare cash at its disposal should be used to reduce the national debt.

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Mr Honohan wrote to Finance Minister Michael Noonan just ahead of last October's Budget advising him that setting out a clear budgetary vision for the coming years would help win public support.

But he warned the plans needed to be both politically and economically feasible, cautioning that prudence was required.

In a four-page letter last September, Mr Honohan warned any eventual increase in Central Bank surplus should be used to pay down debt, and not to increase spending or cut taxes.

"I believe that public acceptance of budgetary policy would be enhanced if the Budget set out a clear vision for the envisaged policy strategy for attaining multi-year budget objectives consistent with requirements under the new fiscal framework."

The revelation comes as both the Fiscal Advisory Council and the Economic and Social Research Institute have warned that plans for Budget 2016 are too ambitious. Prof Honohan said one of the lessons of the crisis years was the benefit of having "sufficiently detailed, measurable and attainable budgetary plans that were both politically and economically feasible".

The Governor urged the Government to use any revenue windfall to reduce debt. "I would therefore also strongly urge that you treat any eventual increase in Central Bank surplus income … as being something that should be applied to reducing debt rather than reducing taxation or increasing spending," Professor Honohan wrote in the letter, released under Freedom of Information.

"A failure to adopt such a policy would mean unnecessarily embedding increases in debt arising from the banking collapse and the bank guarantee into the current level of the Government's debt, making debt reduction much more difficult to achieve over time."

The Fiscal Advisory Council has warned the plan for Budget 2016 is close to twice as ambitious as it should be.

And the Council has warned the Government is on the cusp of breaking budget rules imposed on all European Union governments.

Irish Independent

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