Tax cuts in budget will not be significant, says Donohoe

Minister for Finance Paschal Donohoe is not planning "significant tax reductions" in the next budget and denies there are tensions between himself and Taoiseach Leo Varadkar on the issue.

"I've made the case, even in the Dáil this morning, that any changes I make in relation to tax levels will be ones that are gradual and ones that are affordable," he told the Oireachtas Committee on Budgetary Oversight.

“I believe that taking the approach of very, very large tax reductions in any particular budget is not the right way to go,” he said.

Mr Donohoe appeared before the committee to answer questions on the Government’s recent Summer Economic Statement, which anticipates a budgetary package of €3.4 billion with €800 million to be allocated for additional measures on budget day.

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Given the Government has committed to using additional resources on a two-to-one basis in favour of spending, this leaves just €266 million for tax cuts.

Mr Donohoe denied the size of the proposed cuts had become a source of tension between himself and the Taoiseach, who has pledged to relieve the burden for middle-income earners.

“Budgetary policy will be designed on the basis of what is right for the economy in order to ensure continued, steady improvements in Irish employment and living standards underpinned by stable and predictable tax revenue,” he said.

Sinn Féin's Pearse Doherty suggested that an additional €900 million theoretically available under the European Union's budgetary rules should be used to address the housing crisis.

However, Mr Donohoe said such a move would be “highly inappropriate” and would “ensure that we are in breach of the fiscal rules as we would miss our medium-term objective next year”.

“While the latest economic data all point to an economy with considerable momentum, a continuation of robust growth cannot be taken for granted given the increasingly uncertain external environment,” Mr Donohoe said.

"The UK's imminent exit from the European Union, changes in the international corporate tax landscape, and the possibility of disruptions to the global trading system are some of the principal risks facing the Irish economy at present," he said.

As a result, Mr Donohoe said, it was essential to build up the State’s fiscal capacity to respond to these challenges.

“This is why the Government is prioritising reducing public debt, establishing a rainy-day fund and avoiding pro-cyclical budgetary policies,” he said.