Government to cut debt faster than EU requires

The Government will commit to reducing Ireland’s national debt level faster than it is obliged to under EU rules, as part of the budget package.

The move follows a big fall in the key measure last year, the ratio of debt to GDP (Gross Domestic Product), due to the significant upward revision in the GDP figures by the Central Statistics Office.

The ratio of debt to GDP is the key measure used by the EU to assess national debt levels. The 26 per cent upward revision in Ireland’s level of GDP meant that Ireland’s ratio fell from 105 per cent in 2014 to 78 per cent last year. This was a massive decline and one well in excess of requirements under EU rules.

However, the GDP revision is widely seen as showing a completely unrealistic picture. The Irish Fiscal Advisory Council, the independent budget watchdog, has said that the underlying fall in the debt burden is much less than the headline figures imply.

Growth

It has said the Government “should take advantage of the current relatively strong growth in the economy to eliminate the remaining budget deficit and reduce the debt level.”

The budget speech is expected to commit to faster reductions in debt than required by EU rules, which require debt to make progress towards a 60 per cent target ratio to GDP.

Interest rates

This will be designed to underpin international investor confidence which is currently helping Ireland to borrow at record low interest rates on the markets. EU rules oblige the annual budget deficit and the debt ratio to reduce at specific rates each year. But as part of a response to Brexit, Minister for Finance Michael Noonan is expected to say he will beat the minimum requirements to leave the economy with more scope to respond to any shocks.

The budget will also contain a range of other Brexit-related measures. These will include a package aimed at entrepreneurs , offering a lower capital gains tax rate for those selling their businesses. There will also be significant new incentives for share-based remuneration programmes under which companies reward staff through offering shares.

The Minister is also expected to announce the name of a tax expert to review the Irish corporation tax code in the wake of the European Commission’s Apple judgment, under which Ireland is ordered to recover €13 billion from the tech giant.