Thursday 19 July 2018

Ibec urges Government to break EU fiscal rules and spend extra €1bn in budget

Fergal O'Brien, Head of Economics and Taxation at IBEC
Fergal O'Brien, Head of Economics and Taxation at IBEC

Paul O'Donoghue

Business group Ibec has encouraged the Government to spend an extra €1bn on top of a planned expansionary budget of as much as €1.5bn.

However, this would see the Government breach fiscal rules on budget spending. The Coalition has already been warned by the Irish Fiscal Advisory Council that plans for an expansionary budget of between €1.2bn and €1.5bn were based on a 0.3pc reduction in the State’s structural deficit.

The budgetary watchdog  said that this would represent a “significant deviation” from current EU rules which require a 0.6pc improvement in the deficit next year.

Despite this Ibec should allocate an additional €1bn for infrastructure and innovation investment in the next budget, over and above the planned budget package of as much as €1.5bn.

In its latest quarterly Economic Outlook report Ibec said that EU fiscal rules could be hampering additional essential investment.

It also gave a very upbeat view of the broader Irish economy, predicting that GDP will grow by 5.3pc this year, consumer spending will rise by 2.4pc and exports will grow by just over 9pc.

In a statement the organisation called on Government to seek further flexibility in the EU fiscal rules in order to "significantly ramp up investment expenditure in October's budget".

Ibec Head of Policy and Chief Economist Fergal O'Brien said: "The Irish economy continues to perform very strongly, with GDP growth to exceed 5pc this year. However we are hitting bottlenecks. We now need to invest ambitiously in the country's future or our growth prospects will be damaged.

"EU fiscal rules are complex and while their principles are sound, their current application is unnecessarily restricting Ireland's and other counties' ability to invest."

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