Sunday 25 February 2018

Irish tax cuts will jeopardise funding for infrastructure and housing - EU

EC's Valdis Dombrovskis
EC's Valdis Dombrovskis

Sarah Collins in Brussels

The EU says the Government here must curb spending or risk missing budget targets this year, pointing to healthcare overruns and recent tax cuts.

But Brussels yesterday rowed back on plans to censure Spain, Portugal and Italy for breaching their debt reduction targets, giving them more time to hit targets instead of slapping them with fines allowed under the so-called fiscal compact regime.

In its annual economic policy recommendations, the European Commission yesterday took all member states to task for failing to meet their budgetary and reform commitments.

"Even if many member states have taken impressive steps to reform their economies, on average the implementation level of reforms is not satisfactory," said EU vice-president Valdis Dombrovskis.

The Commission wants EU countries to do more to boost investment and reduce debt in the face of criticism from Germany and other deficit hawks that the European Central Bank is going beyond its mandate to compensate for laziness in Europe's capitals.

For Ireland, the news was mixed.

The Commission officially removed Ireland from a list of countries subject to extra surveillance under the so-called excessive deficit procedure, imposed on countries with budget deficits over 3pc of GDP.

But while the Commission has said Ireland should meet its 2018 target, it is unlikely to meet an interim one in 2016 and should take "further measures".

It blamed healthcare overruns and a recent focus on tax cuts, saying Ireland needs extra money to spend on public transport, water and housing.

The financial sector is also a concern, particularly mortgage arrears and non-performing commercial real estate loans. Unemployment and child poverty rates were also mentioned as concerns. The more dramatic news, however, came with the surprise announcement that Spain, Portugal and Italy had escaped censure despite failing to meet their budget targets.

A strict reading of EU rules should have led the Commission to impose financial penalties on Spain and Portugal, and place Italy back in the excessive deficit procedure.

But EU economics chief Pierre Moscovici said it was "not the right moment, economically or politically" to demand more of Portugal, where a fragile new government is struggling with a sluggish recovery, or of Spain, where a repeat election is scheduled for June 26.

The Commission gave Portugal and Spain an extra year to bring their deficits down and until July to specify how they will do it.

Meanwhile, Italy has until November to come up with a plan to credibly reduce its debt in line with EU rules.

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