Budget 2017: Noonan rejects claim €1.3bn package breaches key EU rules

Finance Minister Michael Noonan said on Wednesday that the €1.3 billion package of measures in Budget 2017 "isn't, really" in breach of EU rules because the EU "understand the arithmetic."

The Minister was responding to criticisms from the Fiscal Advisory Council which warned that the budget, which contained, significantly higher than expected spending increases, had gone beyond what was prudent and was set to breach key EU rules.

The highlights of the budget were a €5 a week increase in the pension and other welfare payments, a comprehensive childcare package, measures to help first-time house buyers and a modest cut in the universal social charge.

Chairman of the fiscal advisory council, Prof John McHale, has expressed concern that when the budget package was combined with earlier additional spending commitments the total increase in spending and tax cuts for next year would come to €3 billion over and above 2015.

Mr Noonan said on Wednesday that the EU has two rules: “one is an expenditure rule, the other is the progress” in terms of reducing the structural deficit. “The two rules were complaint in the Budget as announced yesterday.”

"When the CSO came out with that big figure for growth in the economy, that means we have to deliver another €280million on levies and for 2016 that was an unexpected expense on us and it changed the numbers for us," he told RTE's Today with Sean O'Rourke.

“So technically you could argue that we ended up 2016 in breach but it was because we paid money to Europe.

“Under law it is really the Irish Fiscal Council’s responsibility to, not support the Government, but to give a counter view, to pick out any flaws there might be in our analysis and that’s acceptable, they’re doing a good job.”

No Fines

On Wednesday Mr McHale said while the Government’s spending plans had breached EU rules “these breaches are not large enough, at least in current projections, to bring fines from the EU, but they are still are breaches for this year and next year.”

Budget discussions will resume in the Dáil today following criticisms on Tuesday over the proposed first-time buyer’s scheme and childcare plans.

Leaders questions, which take place this morning , are expected to include queries and grievances over the details of the first-time buyers scheme announced in Tuesday’s budget.

Opponents to the scheme have warned that the incentive for young people to purchase a home will further push up housing prices, while Labour’s Joan Burton described the new allowance as “a direct subsidy to builders”.

Minister for Justice Frances Fitzgerald defended the budget on Wednesday, saying it was “very significant” and would continue “the prudent management of our public finances”.

“It’s only a strong economy supporting people at work that can actually pay for the services are needed to create a fair society,” she said. “It’s about understanding the dynamics of the economy and getting the basics right.”

The highlights of the budget were a €5 a week increase in the pension and other welfare payments, a comprehensive childcare package, measures to help first-time house buyers and a modest cut in the universal social charge.

‘Madness, wasteful and inequitable’

Independent TD Stephen Donnelly also criticised the first-time buyer’s allowance, saying it was “madness, wasteful and inequitable” and would only make the situation “worse for everybody” as housing prices rise.

Under the new scheme, buyers of new homes will be entitled to an income tax rebate of up to €20,000 to fund their deposit. The scheme will provide a rebate of income tax, paid over the four years prior to buying, to a maximum of 5 per cent of the purchase price of a new home valued at up to €400,000.

Mr Donnelly argued that while the scheme would allow some first-time buyers to “get in quickly to buy one of these houses”, the rapid rise in housing prices would prevent many others from purchasing a house.

“For everyone else it makes the situation worse,” he said. “For the negative equity generation who have been ignored since the start it makes their situation worse.

“Everyone who studies economics at Leaving Cert knows that if you have a supply-side problem, you don’t fix it by increasing demand. You fix it by sorting out supply. You provide serious investment for building.”

Criticisms have also been raised over the introduction of a new affordable childcare scheme, with some arguing the plan discriminates against stay-at-home parents.

The measure will see all existing subsidised schemes - excluding the free pre-school years - replaced with a single system of targeted and universal payments to help with the cost of childcare.

While the National Women's Council of Ireland hailed the measures as a "breakthrough" and a "significant change of direction", the Stay-At-Home Parents Association branded the moves "discriminatory" against people who want to mind their own children at home.

Under the scheme, the first targeted subsidy will be means-tested and paid in respect of children aged between six months and 15 years. The highest amounts - about €8,000 a year - will available to parents on the lowest incomes whose child is in 40 hours of childcare per week.

From September 2017, there will also be a universal subsidy payable to parents of children aged six months to three years, of up to €80 per month - depending on how many hours the child is in childcare.

Early Childhood Ireland, while welcoming some aspects of the package, said it was “of significant disappointment” that the capitation levels for the free preschool scheme have still not increased.