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Friday 23 February 2018

'Safety net' loan will mean horror Budget

Minister Michael Noonan
Minister Michael Noonan

ANOTHER horrendous Budget in 2015 would likely be the price imposed on the Government for having a safety net loan on standby after exiting the bailout, the Irish Independent has learned.

Finance Minister Michael Noonan returns from Washington today following two days of talks with the IMF about the end of the bailout and the overdraft facility.

While in Washington, Mr Noonan also discussed with US Treasury Secretary Jacob Lew his Budget decision to crack down on tax avoidance by 'stateless' companies.

The Government is playing hardball in negotiations on a backstop and it is understood that the Coalition will only take up the option of the emergency loan if the strings attached are not too severe.

The Government is pushing back against what it regards as unacceptable conditions that would impose a further brutal year of austerity beyond the bailout.

The harsh conditions attached to a backstop would be likely to include a demand for a bigger deficit reduction in 2015, which would result in a larger adjustment and therefore more pain for the taxpayer.

Government sources said talks on the conditions have not started yet, but have an idea of what is coming their way with tougher debt reduction, more austerity and greater oversight.

"It could be along the lines of being due to hit a deficit of 3pc in 2015, so

come in at 2.5pc or 2.6pc. This is hypothetical and speculative at this point, but that's what you're looking at," a government source said.

"The Government will make up its mind on whether to take one (a precautionary credit facility), but it depends upon the conditions."

A lower deficit-reduction target would result in Budget 2015 being even more severe than the €2bn worth of tax hikes and spending cuts that are already on the cards.

The Coalition will be hoping to reduce this figure anyway, as it did with this month's Budget, based upon greater growth in the economy.

But if it had to lower the deficit further, then this would add on more than €500m in austerity.

The move would also be particularly harsh as it would go beyond the levels agreed with the European Union.

But Mr Noonan warned last week that some European leaders were talking about attaching "unacceptable" conditions if Ireland wanted an overdraft facility.

During his Washington visit, Mr Noonan's key meeting was with IMF managing director Christine Lagarde.

A Department of Finance spokesman said the two had explored the options for exiting the bailout on December 15.

Although the Government is leaning towards exiting the bailout without a 'safety net' loan, in order to avoid onerous conditions being imposed, no final decision on this has yet been taken.

A Department of Finance spokesman said the matter was still "finely balanced".

Mr Noonan also held a 35-minute meeting with US Treasury Secretary Jacob Lew in Washington. It came after months of international controversy about a US Senate report, which said companies such as Apple paid little or no tax on tens of billions of euro in profits stashed in Irish subsidiaries.

It was Mr Noonan's first meeting with Mr Lew, one of the most powerful figures in the US government who was appointed by President Obama in February to replace the Treasury Secretary Tim Geithner.

Keeping the US government onside in relation to our corporation tax system is crucial because there are 1,000 multi-national companies in Ireland employing 285,000 people directly and indirectly.

A spokesman for Mr Noonan said he would be discussing his Budget move to make it illegal for a company registered in Ireland to have no tax residence anywhere. This was done by Mr Noonan in an attempt to avoid "reputational damage" – but tax experts believe that it will have little effect on how much tax is paid by US multinationals.

Despite the bad publicity about the country's corporate tax system, Mr Noonan has repeatedly insisted that it is open and transparent with the rules clearly set down in national law.

And he has argued that aggressive tax planning by companies to minimise their bills relies greatly on mismatches between the domestic rules of different countries

On the final day of his visit to the US, Mr Noonan also met a range of business and political contacts at the Irish Embassy in Washington.

By Fionnan Sheahan  and Michael Brennan

Irish Independent

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