EU move may give Coalition more scope on budgets

The Coalition expects that the EU will soon grant the State more leeway on key medium-term financial targets, which would increase the room for manoeuvre in future budgets.

An ongoing review of fiscal targets by the European Commission comes as new data shows Ireland’s recovery is accelerating, with the economy now expanding at a rate not seen since the “Celtic Tiger” era.

Weeks before the election is called, the prospect of a key budget target being eased by the authorities in Brussels suggests the next government will have more money to spend, provided it makes further progress to repair the public finances.

The current EU targets provide scope to expand the budget by a total of €8.8 billion between 2016 and 2020, with the biggest increases allowed in 2019 and 2020. A relaxation of these targets – possibly before the start of 2016 – could give the next administration the flexibility to boost the budget by €10 billion in the same five-year period.

Any such increase would take effect only in later years, but it could provide scope to bring foward major capital projects.

Figures from the Central Statistics Office show that gross domestic product grew by 7 per cent in the 12 months to September, the fastest rate since 2000.

Economists now expect growth around 7 per cent for 2015 as a whole, higher than the Coalition’s current forecast for 6.2 per cent growth.

Ireland’s growth is already on track to be the fastest in the euro zone, which itself is forecast to grow only by 1.5 per cent this year.

The CSO figures show that consumer spending and capital investment are increasing, with output rising in all business sectors.

Minister for Finance Michael Noonan said the data showed the recovery in economic activity was broad-based.

Stockbroking firms Merrion, Davy and Goodbody each said GDP growth for 2015 was likely to come close to 7 per cent.

The growth rate in 2016 was foreast then to ease to 4.3 per cent of GDP in 2016 but some economists suggest a higher rate for next year is also now possib le.

Ireland is obliged under EU agreements to meet a “medium-term objective” of a balanced budget in structural terms by 2019. At issue in EU talks is whether the “medium-term objective” is reset to allow Ireland aim for a 0.5 per cent structural deficit. The structural deficit is an estimate of the permanent deficit in the public finances net of cyclical and temporary measures.

Such a move would mean the next government could achieve its target earlier than 2019, opening up scope in the medium for an earlier expansion of the budget.