Saturday 21 July 2018

Hopes of €1bn tax cut bonanza given reality check by Varadkar

Taoiseach Leo Varadkar. Photo: Getty Images
Taoiseach Leo Varadkar. Photo: Getty Images
Kevin Doyle

Kevin Doyle

A €1bn tax giveaway in the next Budget may have to be curtailed if there is any risk of the economy overheating in the months ahead.

Taoiseach Leo Varadkar has moved to dampen expectations that the country can afford to return to boom-time spending.

On Budget Day, it was indicated the Government would have a total of €2bn for new expenditure and €1bn for tax cuts in 2019.

However, the Taoiseach now says: "If the economy continues to grow at the rate it is growing now, I think we would have to consider not spending all of the resources available to us."

The statement will come as blow to workers who would have hoped to share in the spoils of an increasingly buoyant economy.

Mr Varadkar said that in theory the country could afford to reduce the entry point for the higher rate of income tax and cut the Universal Social Charge (USC), but "whether it is prudent to do so is a different question".

Tax reductions announced in October's budget come into effect from Monday and are worth around €4-€6 per week to the average worker.

"People will start to feel the effect of the Budget for real in their pay packets over the next couple of months," Mr Varadkar (pictured) said.

"Economic growth is ahead of expectations. We expect the economy will grow by more than 5pc this year, that's a bit better than [previously] expected. Unemployment is about 6pc and long-term unemployment, people out of work for more than a year, is down at around 3pc. We expect that to fall," the Taoiseach added.

But when asked about plans for the year ahead, Mr Varadkar said the public should not expect the Government to embark on a spending spree.

"The first priority for next year is to keep the economy on track and manage the public finances prudently.

"We'll avoid overheating in the economy and continue to reduce the debt, not just public debt but also observing a reduction in personal and household debt."

He said it was "not certain" that a full €1bn would be used for tax cuts but "the focus in terms of tax will be similar to what it was last year".

"What we do spend will be spent primarily on services and infrastructure with the lesser part, a third or less, going to tax reductions and tax relief, particularly for middle-income earners.

"But there is a risk, as is always the case for a growing economy with low unemployment, of repeating the mistakes of the past and actually making government decisions that could overheat the economy.

"We know that if we increase capital spending too quickly, even though we all want more hospitals, schools and houses, all you do is drive construction inflation and you end up getting the same number of schools, but you pay more."

Speaking to reporters at a Christmas briefing, Mr Varadkar said it was a big success for a minority government to get a second Budget through the Dáil.

"We have got a Budget through and while people look back at the Budget in different ways, one thing we shouldn't forget is that it was the first budget to balance the books in 10 years.

"That puts the State in a very good position financially to weather any storms, future downturns or absorb shocks as they arise in the future," he said.

Irish Independent

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