Budget deficit will not be increased to pay for spending, Minister says

Paschal Donohoe makes the claim as he attends meeting of EU ministers for finance

 Minister for Finance and Public Expenditure and Reform Paschal Donohoe. File photograph: Gareth Chaney/Collins

Minister for Finance and Public Expenditure and Reform Paschal Donohoe. File photograph: Gareth Chaney/Collins

 

The Government will not increase the budget deficit to pay for increases in spending or tax cuts, the Minister for Finance, Paschal Donohoe, said on Friday.

Speaking to journalists in Vienna, Mr Donohoe would not be drawn on the advice from the Fiscal Advisory Council to run a budget surplus.

Mr Donohoe said it would provide a “useful input” into his budget calculations, but he also made clear that he accepted its essential argument for fiscal discipline in the face of potentially difficult economic times.

Echoing what he says he told the Fine Gael parliamentary party on Friday, the Minister said that “a key point that I would make is that the budgetary parameters that I have identified – that if you go beyond the €3.4 billion package, you will need to either not spend elsewhere or raise additional money to pay for that – are parameters that I accept and, in the parliamentary party meeting . . . this is a point that I made.”

Mr Donohoe was attending a meeting of EU finance ministers in Vienna whose agenda includes a rehearsal again of the arguments for and against European Commission proposals for digital taxation, a matter of serious concern to Ireland.

The Minister also had a bilateral meeting with British chancellor Philip Hammond about “the status of the Brexit discussions” but refused to be further drawn on its content.

Internal paper

A leaked German internal paper this week questioning the logic of the commission and French proposals on digital taxation has given Irish officials a new confidence that the current majority of member states in favour may be breaking down.

Mr Donohoe told journalists that although the tide had not yet turned against the move, he believed the flaws in the proposals would be exposed before December when the Austrian presidency hopes to get a positive decision.

In the context of growing global protectionism, he warned that unilateral digital tax measures by Europe would have adverse consequences for European innovation and trade. Only a global approach in the context of the OECD, he said, would work. “That is the safest way to do this.”

He said the Nordic countries in particular have become increasingly sensitive to the threat that such unilateral taxation measures could have to their industries.

On the periphery of the meeting, concerns about the Italian populist government’s fiscal intentions were somewhat assuaged by assurances from finance minister Giovanni Tria, who met EU economic affairs commissioner Pierre Moscovici and commission vice-president Valdis Dombrovskis. Mr Moscovici, on his way in to the meeting, warned that Rome need to strengthen its country’s finances or risk jeopardising Italy’s position at the centre of European affairs.

Deputy prime minister Matteo Salvini this week was promising that Italy would abide by EU budget constraints.

Money-laundering

Ministers discussed common action against money-laundering in the wake of a “reflection paper” drawn up by EU regulators and circulated to EU capitals this week set out options including handing a greater co-ordinating role to the European Banking Authority, an EU agency that brings together national supervisors.

Although the European Central Bank has urged the EU to reinforce enforcement of its anti-money-laundering rules and co-ordination of enforcement, the EU’s central bank is reluctant to take on the role, Benoît Coeuré, a member of the ECB’s executive board, told ministers.

The Eurogroup ministers also heard reports on the ongoing work related to completing work on proposals to create a common backstop to deal with future catastrophic banking failure in the EU’s Single Resolution Fund.

The Austrian presidency is determined to see the discussions and technical work completed by December on a measure whose importance Mr Donohoe stressed, although it is not widely understood. Critically, he said, it would “put in place a big block of policy that was missing during the crisis . . . that offer the prospect of protecting the taxpayer in a way that didn’t happen in the past.”

Politicians, he said, had a responsibility to explain that to voters in a language they would understand.