After years of relentless cutbacks, tomorrow’s budget will be the first since the crash to increase public expenditure. Some €450 million in spending “leeway” came into view when the Cabinet met on Friday, reflecting the recovery in the public finances as economic growth quickens. The spending picture is improved by the fact large cuts foreseen for 2015 will not be made.
The main beneficiaries are the health, education and justice portfolios, with money set aside for social housing.
While the availability of additional funding for the first time in years greatly eases the Government's task as it formulates Budget 2015, Ministers have huge spending demands.
Budget deficit
The Government had assumed a further €2.1 billion retrenchment would be required next year to bring the budget deficit under 3 per cent of gross domestic product, as required under EU agreements.
The €2.1 billion embraced €800 million in new tax increases and €1.3 billion in cutbacks, including €600 million in settled cuts to be made next year and a further €700 million in cuts.
This retrenchment target was scrapped, however, as improving tax returns and an expanding economy showed the Government was on course to beat its own deficit target of 4.8 per cent of GDP.
Figures released by the Department of Finance suggest the end-2014 deficit will come in at 3.7 per cent, meaning the distance to be travelled to a deficit below 3 per cent in 2015 is much shorter than anticipated.
Target of 2.7%
This has a major bearing on the spending plan by Minister for Public Expenditure Brendan Howlin and on tax measures by Minister for Finance Michael Noonan. The Department of Finance calculates the deficit would drop to 2.4 per cent if there were no changes on budget day. To give scope to increase spending a little and reduce income tax a little, the budget will be predicated on a deficit target of about 2.7 per cent.
Mr Howlin told the Cabinet in mid-September an opening to allow an additional €600 million in expenditure had emerged. Having resisted pressure to increase the €600 million, he conceded on Friday a further €450 million would be available.
This includes €350 million from additional tax revenue next year. As the Government takes the benefit of decreased borrowing costs, at least €100 million is available from elsewhere. Together with the cancellation of €750 million in “unallocated” cuts, the effective expenditure swing stands at €1.8 billion. A further €200 million in capital expenditure has also been settled.
The water charge will still be imposed, but income tax measures will lessen the load.
