Monday 18 December 2017

EU claim for over €2bn in tax and cuts is rejected

The European Commission has warned there is no wriggle room
The European Commission has warned there is no wriggle room
Colm Kelpie

Colm Kelpie

The Government has dismissed the European Commission's claim that tax rises and spending cuts should go further than the €2bn already pencilled for the Budget.

The commission has warned there is no wriggle room and that spending problems in the health sector pose a risk to meeting the budgetary targets.

In the first inspection report since the bailout, the commission said talk of cutting taxes or hiking spending can create expectations that may be "difficult to manage".

But the Department of Finance said the commission is basing its projections on different economic forecasts from the Government's.

"We have consistently stated that the overarching budgetary strategy is to reach the 3pc of GDP deficit target and this has not changed," a department spokesman said.

"If economic growth over-performs, the fiscal effort necessary to reach this target will be reduced. Similarly, if growth does not materialise, further efforts may be required."

The department said it has beaten its deficit targets in recent years and that the Fiscal Advisory Council had signed off on its forecasts as being reasonable. The commission's report said that if nothing was done, the gap between how much the state spends and takes in through taxes and revenue would narrow to just 4.2pc next year, when the target should be under 3pc.

To meet the target, an adjustment of 1.5pc of GDP, or more than €2bn, would be needed, it said. But the commission also starkly warned that "slippages" in the health sector constituted a risk to meeting the 2014 budget targets.

It said that some of the savings planned for the health sector have already been deemed unachievable, while the planned savings from increased control of medical cards were lowered from €113m to €23m.

"In the very recent past, statements and discussions have appeared in the political debate assessing the possibility of cutting taxes and/or increasing spending in light of improving economic conditions," the Brussels-based body said.

"These statements can create expectations that may be difficult to manage."

And it said that while Ireland has consistently beaten its targets, there was a recent tendency to rely on efficiency measures, better control of health and social care payments and "temporary windfall revenue".

On housing, the commission said there were no signs of a credit-driven property price bubble.

Irish Independent

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