Brussels worry over cuts to USC and water bills
Brussels has called into question the suspension of water charges and promised reductions in USC, as it put pressure on the Government to rethink tax cuts and fix spending overruns in health.
The European Commission says Ireland is at risk of breaching EU budget rules this year if it does not act.
The Government was called out for not doing enough to "broaden the tax base", which is code for catching more people in the tax net.
"Efforts to broaden the tax base have been limited and recent tax measures have focused on cuts and reliefs," the Commission said in the six-page economic analysis containing the recommendations.
While it didn't mention specific taxes, the Commission is known to be concerned about the suspension of water charges and the phasing out of the Universal Social Charge (USC), both of which, it believes, would have shielded Government finances against future crises.
The Commission also said there is room for increasing the "least distortionary" taxes, such as VAT.
One of the central pillars of the Programme for Government is the gradual phasing out of the USC, while the future of water charges is uncertain - pending the report of an expert commission next year.
The "cost-effectiveness" of the health sector, particularly high drug prices, will also weigh on Ireland's fiscal space, the Commission said.
It said financial management and computer systems in the HSE are "weak", while "the universal health insurance model is in a quandary".
The Programme for Government has promised to maintain higher health spending while reducing prescription costs.
The spending overruns are important, the Commission said, as they limit the room for much-needed investment in public transport, water and housing.
The Commission's criticisms rest on complicated calculations about how Ireland will meet its EU budget commitments in 2016.
Although the Commission confirmed that Ireland is officially out of the so-called "excessive deficit procedure" - meaning the overall budget deficit is within the EU's legal limit - the Government is still bound by other fiscal rules. It now has to aim for a balanced budget and link spending to economic growth.
By the Commission's calculations, Ireland risks a small overrun in 2016, putting at risk its target for a balanced budget by 2018.
The Commission's figures differ from those put forward by the Department of Finance in the economic update it sent to Brussels in April.
A spokesman for the Department of Finance told the Irish Independent that the figures were often subject to revision, especially in Ireland's case, but that the EU targets would be met.
"The Government has stated its commitment to deliver compliance with the fiscal rules," he said.