Donohoe may have €1.3bn for tax cuts and increased spending

The Government may have as much as €1.3 billion for tax cuts and spending increases in the upcoming budget, somewhat more than previously thought.

In a briefing note supplied to the Oireachtas Budgetary Oversight committee, Minister for Finance Paschal Donohoe indicated that spending commitments already entered into for 2019 will use up approximately €1.4 billion of the previously estimated fiscal space of €3.2 billion.

With Government intending to put €500 million of budgetary resources into the so-called rainy day fund, this would leave around €1.3 billion for additional spending increases or tax cuts come budget day.

The figures are based on the Government's recent Stability Programme Update (SPU), submitted to the European Commission in April, but may be revised later in the year on the basis of updated economic forecasts, changed spending commitments or a greater projected fallout from Brexit.

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Constrained

Mr Donohoe has repeatedly stressed that his room for manoeuvre on spending increases and tax cuts would be constrained by the high level of previously agreed commitments. These include the carry-over costs associated with the previous budget, demographic-related costs and the latest public sector pay deal.

“The forthcoming Summer Economic Statement 2018 will outline the parameters for Budget 2019,” Mr Donohoe said in the briefing note.

“In setting these parameters, a key consideration is the formulation of budgetary policy, based on what is right for the economy, and that does not jeopardise the sustainability of our public finances, and our future living standards,” he said.

Mr Donohoe said it was imperative that the pro-cyclical mistakes of the past are avoided. With the economy “very close” to full employment, it is crucial that budgetary policy does not add to overheating pressures, he said, noting the current level of jobs growth will see employment rising above the pre-crisis peak of 2.24 million later this year.

Pre-committed

Mr Donohoe has previously pointed out that there was pre-committed expenditure of €2.6 billion for next year, which includes €1.5 billion for the national development plan, €400 million for public sector pay, €400 million for demographic costs, and €300 million to provide for carryover costs next year of measures introduced in the budget this year.

Fianna Fáil finance spokesman Michael McGrath complained last week that the Minister's numbers kept changing.

He said that last year the €3.2 billion figure for net fiscal space was after demographic costs had been accounted for, in contrast to this year’s projection.