Varadkar and Donohoe defend budget against fiscal council attack

Taoiseach Leo Varadkar and Minister for Finance Paschal Donohoe have defended last month’s budget against the excoriating criticism made of it by the Irish Fiscal Advisory Council (Ifac) by saying they could not turn a “blind eye” to pressing needs in housing and health.

Mr Donohoe also maintained that, unlike a predecessor as minister for finance, Charlie McCreevy, when he had it, he did not spend it.

Mr Varadkar said the fiscal council’s assessment that the budget was not prudent differed very much from that of the European Commission only a week ago. He also insisted the Government’s spending was modest compared to the constant demands of the left-wing Opposition for increased spending.

“The European Commission found that [the budget] was compliant with the stability-and-growth pact. We will meet our deficit target this year, it was 0.2 per cent of GDP [gross domestic product]. We will meet our target next year. We are increasing spending and doing it in line with growth in the economy,” he said.

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He said the advisory council had been particularly critical of the increase in spending. “That was done for good reasons. We do need to invest in housing and in infrastructure and in climate change and there are enormous demands in health in particular,” he said.

“We could not turn a blind eye to the need to invest in public services and infrastructure.”

The Taoiseach and Mr Donohoe were speaking at the launch of a €77 million climate action fund, which gave the green light to seven major capital projects that will reduce emissions in Ireland.

Future challenges

Mr Donohoe said he and the Taoiseach had discussed the fiscal council’s assessment in depth early on Wednesday morning and would be studying its findings carefully. He said that unlike other governments who had ignored the warnings of the fiscal council, the Government would look closely at their views on future challenges facing the economy.

He argued that despite constant Opposition demands for increased spending he had adopted a prudent approach.

“What we have done in the last two budgets has been about finding the balance between [tending to] the economy and meeting the societal needs each day,” he said.

“We would ask the views of the European Commission be kept in mind and they view us fully meeting the obligations we have.”

He said that was a clear recognition of Irish budgetary performance.

Referring to an infamous phrase of former Fianna Fáil minister Charlie McCreevy, who said “When I have it, I spend it,” Mr Donohoe said: “We have it, do we spend it? In the two budgets I have brought in, we have put in places tax changes to fund additional expenditure.

“We increased stamp duty and increased the VAT rate to 13 per cent. They were tax changes to reflect changes in those sectors [and] changes to fund that [extra] expenditure and all the additional capital expenditure.”

He said: “When we get to next year it will be funding [expenditure] out of tax that we are collecting.”

Mr Donohoe said there were those who argued the Government should be moving to a surplus more quickly, but he said the Government would be in a position to balance the books next year. Mr Donohoe also suggested there were other prisms through which the budget should be viewed.

“Where would our economy stand if we were building fewer homes and not putting in projects to link up rural towns and cities, not investing in transport or trying to meet our climate change objectives?”

He said: “They are the other objectives that our economy needs to deliver.”

‘Tight rein’

Mr Varadkar said the Government did not want to be dismissive and would heed the advice of Ifac to keep a tight rein on public spending in the years ahead. He said it was a tough job and every day he walked into the Dáil the Opposition was calling for more spending.

He said: “If you listen to the Opposition, we should borrow money and spend more and not have a rainy-day fund.”

He claimed that if people listened to that kind of left-wing rhetoric that the economy would plummet very quickly.

Mr Varadkar also maintained he never made a commitment to increase carbon tax in the budget this year. He said he had looked through everything he said in August and never made that commitment.

Mr Varadkar’s comments was reported in early August saying carbon tax would have to increase in the next few years. He did not specifically mention this year’s budget.

Mr Donohoe also took issue with claims the Government was being populist. He said populist governments dismissed institutions. He said the Cabinet would examine in depth the views of the fiscal council.