Friday 9 December 2016

Budget will test the Government

Published 28/08/2016 | 02:30

Finance Minister Michael Noonan. Photo: Tom Burke
Finance Minister Michael Noonan. Photo: Tom Burke

Budget 2017, which is now six weeks away, is already shaping up to be a significant test for the stability of the minority Government, which is dependent on Fianna Fail support from Opposition. Documents released recently by the Department of Finance suggest that the Government will be able to further reduce the budget deficit while providing for spending increases and tax reliefs.

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If the result of the General Election has told us anything, it is that voters prioritise a restoration of services through increased spending over tax cuts. However, that is not to say that people would not like to see more money in their pockets, or that the economy, and therefore society in general, would not benefit from a consequent increased consumer spending. The delicate balance between increased spending and tax reliefs will be difficult for Finance Minister Michael Noonan to negotiate.

Recent forecasts, on which the estimates of the 'fiscal space' are based, assume that economic expansion at a rate of around 4pc is likely to continue more or less indefinitely. However, as Mr Noonan will be only too aware, ever-present threats to such a growth rate continue to exist. If anything, those threats increased this summer following the UK decision to withdraw from the European Union. Eminent economist Colm McCarthy argues in this newspaper today that the Budget in October does not need to give an extra boost to an economy already expanding as well as could be expected. He states that it would be wise to leave some 'fiscal space' unspent given the uncertainties, such as the still unknown consequences of Brexit. Mr Noonan will be cognisant that there is much merit to this argument.

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