Ministers told to rein in spending and allow for tax cuts

Government plans to ease tax burden on low- and middle-income families

Prof John McHale, chairman of the Fiscal Advisory Council, last night said the Government needs to stick to an adjustment of €2 billion in the budget. Photograph: Dara Mac Dónaill/The Irish Times

Prof John McHale, chairman of the Fiscal Advisory Council, last night said the Government needs to stick to an adjustment of €2 billion in the budget. Photograph: Dara Mac Dónaill/The Irish Times

Thu, Jul 24, 2014, 01:07

Ministers have been warned to scale back their spending demands for next year as the Government pursues measures in the October budget to ease the tax burden on low- and middle-income families.

As the Cabinet met yesterday for the last time before the summer holiday, Minister for Finance Michael Noonan and Minister for Public Expenditure Brendan Howlin told colleagues the improving economic outlook did not mean they could now plan to spend liberally.

They circulated a joint memo to Cabinet which said Ministers have already submitted spending proposals which would increase total expenditure next year by €1.5 billion if no other cutbacks were introduced.

This is in spite of the fact that the Government will still need a further round of cutbacks and tax hikes if it is to bring the budget deficit below 3 per cent of economic output next year to meet the EU-mandated target.

The Government believes it can meet the deficit target with an unspecified package of less than €2 billion, the figure sought by the International Monetary Fund, the European Commission and the Fiscal Advisory Council.

Last night in Donegal the chairman of the Fiscal Advisory Council reiterated its stance. Prof John McHale said the Government needs to stick to an adjustment of €2 billion in the budget as any “backtracking on planned adjustments could suggest a worrying weakening of the commitment to the new fiscal framework”.

Spending plans

Spending plans have been received from the Health and Social Protection Departments but not from Justice and Education. Outstanding submissions must be delivered before Thursday next.

Despite the spending claims made in their individual submissions, Ministers will have to significantly curtail their total demands if the required deficit is to be achieved.

Another factor is that the Government wants to start the process next year of easing the income tax burden, something which will place further pressure on expenditure.

Tax measures

There was no substantive discussion on tax measures yesterday at Cabinet, it is understood, although the debate centres on whether the top rate of tax should be cut or tax bands widened or whether there should be a mixture of both.

While a difficult budget negotiation is now in prospect, Mr Noonan said yesterday that “less cutbacks and less tax increases” than previously foreseen will now be necessary.

This has been attributed to improved tax revenues and less expenditure, with increased employment the driving force.

Arriving at Cabinet, Mr Howlin said: “The economy has grown, the tax revenue has increased, the number of unemployed has fallen. So these are all good auguries, they’re assistances.”

He said the budget would “certainly” not embrace a €2 billion package, saying it would be “less demanding” than that. However, he also sounded a warning: “We’re not out of the woods.”

The prime point of contention is expected to be the health budget. Newly-installed Minister Leo Varadkar said yesterday he was “very conscious” that a realistic budget for next year would be required to maintain services.

“I certainly hope I will have the support of everyone in doing that,” Mr Varadkar said.

Last night, however, Mr Howlin argued in a blog on his department’s website that health spending had barely fallen since the Coalition took power in 2011 when supplementary estimates were taken into account.