Budget 2016: Cabinet told €1.5bn is upper limit of extra spending

Ministers are being told to rein in their spending demands as the inner Cabinet pushes back on pressure to provide more money for the 2016 budget.

Minister for Finance Michael Noonan will present a formal update on the economic and fiscal situation to the Cabinet today in which he says there is no scope to go beyond a package of up to €1.5 billion in new spending for the budget next month.

Taoiseach Enda Kenny underscored the message to Ministers yesterday when he urged restraint, telling them, “We are not going to blow the recovery.”

Mr Noonan's information memo on the budget echoes the view of the Economic Management Council, the powerful Cabinet subcommittee at which Mr Kenny sets the thrust of fiscal policy with Tánaiste Joan Burton, Mr Noonan and Minister for Public Expenditure Brendan Howlin.

Requests for new spending have already reached multiples of the amount the Government has set aside for the budget, but Mr Kenny intervened in a public form yesterday to say Ministers should prioritise their demands.

“We’ve parameters set of between €1.2 billion and €1.5 billion and that is where we’re going to stay,” the Taoiseach said.

The limits were set in April when the Government published its spring economic statement.

Leeway to expand

Although many Ministers assumed a surge in tax revenue and economic growth would eventually provide leeway to expand the 2016 package, both Mr Noonan and Mr Howlin have been insisting such a move is not possible under national and European rules.

This stance means that demands for big increases in health, justice and education spending will have to be pared down next month.

Having set outline budget parameters five months ago, and insisted since that there will be no deviation, the Government would run the risk of undermining its own story if it increased the spending limits.

In his submission to the Cabinet today, Mr Noonan is to cite vulnerabilities linked to Ireland’s high national debt and external risks from volatility in the Chinese economy and Europe’s migration crisis.

External observers

The plan will be predicated on the achievement next year of a budget deficit in the region of 1.5 per cent of gross domestic product, a target which finds favour with external observers.

As budget talks intensify, the Government received a tacit blessing from the Organisation for Economic Co-operation and Development for the planned additional spending.

On a visit yesterday to Dublin, the OECD general secretary Ángel Gurría said the proposal to increase the budget by up to €1.5 billion was “prudently expansionary” and continued to bring policy in the right direction.

While Mr Gurría said Ireland was the "comeback kid" of Europe's crisis-struck economies, he called for measures to reinforce protection against any economic shock.

The rise in tax revenues and the reduction in borrowing costs provided an opportunity to increase debt repayments, the OECD said.

The body expressed concern about the rise in residential and commercial property prices but it welcomed moves by the Central Bank to cap mortgage lending.

The OECD also called for an acceleration in the court process for the repossession of property from mortgage defaulters and suggested a third lower rate of income tax to help unemployed people take up work.