Government spending plans may fall foul of EU - Ibec

The Government’s ambitious capital investment programme may fall foul of the EU’s strict fiscal rules, Ibec has warned.

In an analysis of the programme for government, the employers’ group welcomed moves by the new administration to increase capital spending by an additional €4 billion by 2021.

However, it said the numerous commitments in areas such as enterprise, education, housing and transport would require a more flexible approach to how EU fiscal rules are applied.

"The Government needs to work to secure a political agreement in Brussels to make this happen," Ibec said.

Under the EU’s Stability and Growth Pact, member states are obliged to adhere to strict debt and deficit targets.

“Strong growth and a rapidly increasing population are putting severe pressure on the country’s infrastructure and public services,” Ibec’s director of policy Fergal O’Brien said.

“We are currently investing far too little,” he said, noting Ireland’s capital investment expenditure was currently the second lowest in the EU despite having Europe’s fastest growing population.

Mr O’Brien said average annual exchequer-funded capital investment over the 2015-2020 period at under 2 per cent would be the lowest of any period since 1970.

Ibec wants the annual capital spend to be increased to about 4 per cent of gross domestic product (GDP).

“Much greater capital expenditure is needed to enhance the productive capacity of the economy and ensure sustainable growth in the future,” he added.

Ibec chief executive Danny McCoy said last week it was vital that public-private investments undertaken under the Juncker investment plan announced last year are kept off the State's books and will not be open to reinterpretation by the EU's statistical agency Eurostat.

In its analysis, Ibec said the new Government’s ambitions around tax were largely in line with the pre-election manifestos.

The proposed in personal tax rates such as the continued phasing out of the USC for low and middle income earners would be welcomed for workers, it said.

However, it warned abolishing the USC would be “a step in the wrong direction” as such a move would narrow the tax base and place more pressure on a smaller numbers of tax payers.

Instead Ibec wants part of the USC to be converted to a contribution for workers to a defined contribution pension scheme.

The employers' group suggested the Government's tax reform agenda should include a commitment to reduce the marginal income tax rate to 45 per cent, which it said would put Ireland in line with competitor economies.

It also noted the programme made no explicit reference to the digital single market, “its importance to Ireland or a need to engage internationally on it”.

On housing, Ibec said the Government’s promises were largely positive but it would be crucial to see measures implemented which will reduce the cost of private sector housing supply.