Government blow out leaves minimal room for further tax cuts and expenditure measures – McGrath

Fianna Fáil Finance spokesperson Michael McGrath has described the post-election budgetary room for manoeuvre as extremely limited based on a parliamentary reply he has received.

The information provided by the Department of Finance indicates that there will just €500m of “fiscal space” available in 2017. This is just one-sixth of the pre-election blow-out that has taken place in the last few weeks and indicates a considerable slowdown in the level of tax cuts and expenditure measures which can be introduced after the election.

Deputy McGrath commented, “At the end of 2014 the government took a conscious decision to engage in a pre-election splurge. This began with a reversal of the planned €2bn budget adjustment in 2015 and led to €1.1bn of supplementary estimates at the end of 2014 and a €1bn tax and expenditure giveaway for 2015. Already this year the government have announced a further €1.7bn in supplementary estimates, without any improvement in services, due to the mis-management of the public finances and budget day measures amounting to €1.5bn. All told this amounts to a €7.3bn pre-election spend.

“A considerable proportion of the additional expenditure is being funded by corporation tax receipts and profits from the Central Bank. Both of these windfalls may not be repeated in future years.

“There is now a clear picture emerging of a government that has lost all focus on delivery of better public services and sustained improvements in people’s standard of living. The government’s sole purpose now appears to be its own re-election. It has given up any pretence of having a reform agenda. Their strategy now is to throw around as much money as possible before the election in the hope that it gets them to early March.

“The government has failed to articulate a strategy as to how to spend this money effectively. Their record in four key domestic issues: housing, healthcare, mortgages and water, has been abysmal. They are unable to point to a single concrete achievement in these areas, despite spending being massively ramped up.

“There is now a real risk now that an incoming government will be forced in to an immediate reining in of runaway spending in order to comply with EU expenditure rules. This will also considerably reduce the scope for any further tax cuts. The Taoiseach’s claim of wanting to abolish the Universal Social Charge in the lifetime of the next government is considerably undermined by data provided by his own Minister for Finance,” concluded Deputy McGrath.

PARLIAMENTARY QUESTION NO: 146

DÁIL QUESTION addressed to the Minister for Finance (Deputy Michael Noonan) by Deputy Michael McGrath for WRITTEN ANSWER on 22/10/2015

To ask the Minister for Finance if an estimate has been made of the available fiscal space for Budget 2017 and Budget 2018, based on current information; and if he will make a statement on the matter.

REPLY.

Estimates of the gross and net fiscal space for the period 2017 to 2021 can be found in Tables A8 and A9 on pages C.50 and C.51 of the Budget 2016 book. The estimated net fiscal space available for 2017 is €0.5 billion and 2018 is €1.1 billion.

Table A9 shows the walk from gross fiscal space to net fiscal space. The former is simply the permitted fiscal space arising from applying the estimated growth rate permitted under the expenditure benchmark to the 2016 expenditure aggregate. These amounts are not final and are estimates based on the GDP deflators, benchmark reference rates and convergence margins forecast for each of the years in Budget 2016. The actual deflator, reference rate and margin values used by the Commission to assess compliance with the rules each year beyond 2016 will be based on Commission estimates as set out in their forecasts in each relevant year.

The net fiscal space takes account of expenditure projections as set out in Table 10 on page C.22 of the Budget book. These include the annual cost of providing for demographic spending pressures together with a number of other anticipated elements such as the Public Capital Plan, the cost of the Lansdowne Road Agreement and a number of other calls on the Central Fund. The estimated cost of indexing the tax system is included in tax revenue forecasts in Table 10. The additional revenue that could be generated from a decision not to proceed with indexation is included as an option in the discretionary revenue measure line in Table A9. This will be a matter for decision by the Government of the day.

These available amounts of fiscal space could potentially be used by the government in power to reduce the debt, to fund tax reductions or to finance spending increases.