Bullish talk of Budget 2018 as economy continues to motor

October may be six months away, but with more job announcements and upgraded economic forecasts for this year and next, Minister for Finance Michael Noonan felt emboldened this week to start talking about Budget 2018.

Speaking at a conference in the Central Bank on Monday, Noonan said his department is now projecting that gross domestic product will expand 4.3 per cent this year, compared with the 3.5 per cent forecast at the time of the annual budget in October.

Next year, the economy is set to grow by 3.7 per cent, he said, compared with a previous estimate of 3.4 per cent. Owing to this, Noonan said there will “probably be some additional funds available” come budget time.

However, while Budget 2018 is expected to allow for a €1.2 billion budgetary adjustment, the real room for manoeuvre could be as little as €570 million because of the carryover effects of measures contained in Budget 2017.

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Pressure on spending from an ageing population, and pay rises agreed under the Lansdowne Road deal, have already dented the Government’s budgetary options.

Business lobby group Ibec called on the Government to abandon its “austerity fetish” and double its current spending on infrastructure.

Furthermore, it said the Government should reverse its 10 per cent cap on annual exchequer spending on public-private partnerships (PPPs) to boost the level of private-sector funding in infrastructure provision.

“The problem with the current Government is we don’t think it is being ambitious enough,” said Ibec director of policy and chief economist Fergal O’Brien. “It is still very much locked into an austerity mindset . . . There are trade-offs here, and you can’t create better infrastructure while at the same time reducing debt.”

The OECD also had its say. In a new report, Taxing Wages 2017, the Republic was ranked comparatively low in terms of tax compared with 35 countries across the world.

The report measures the so-called tax wedge, which is a measure of the tax take on income, including income tax and levies and employee and employer social-insurance contribution.

On families, the Republic exerts a clear “fiscal preference” for levying lower rates of tax, with Irish families among the lower-taxed in the world. It found the personal tax wedge fell substantially in the State between 2000 and 2016, down by more than five percentage points for families.

Single people, on 67 per cent of the average wage or an annual income of €22,523, saw their tax wedge drop 11.7 percentage points. Single parents on a similar income level saw their tax wedge drop 18.1 percentage points.

More jobs

On the jobs front, the Department of Finance said the economy is on target to create another 55,000 this year and a further 50,000 in 2018, bringing the unemployment rate well below 6 per cent and the State close to full employment.

Among this week’s announcements was the healthy fast food chain Chopped, which said it would create 320 new jobs as it doubles the number of outlets it has to 40. The Irish company said it also intends to take on 110 employees in Britain as it expands overseas.

Grafton Merchanting, the owner of the Chadwicks and Heiton Buckley brands, announced it will create 170 jobs over the next two years. The jobs will result from an expansion of the business, driven by more construction and new homes.

Irish medtech firm Diaceutics said it would add 30 jobs to its workforce in the coming year, as the company targets further growth in the EU, the US, South America and Asia.

Separately, ESB International, a subsidiary of ESB, will recruit 150 professionals over the next three years on the back of €11 million worth of new contracts in Africa, the Middle East, Europe and with international funding agencies.

Banking matters

Anyone short of a few bob might consider applying to be the next chief executive of Bank of Ireland. Minister for Finance Michael Noonan this week effectively signed off on allowing the bank to breach the €500,000 State-imposed pay cap.

The remuneration of the bank’s outgoing chief, Richie Boucher, exceeds the limit. “If they appoint somebody significant from outside, I think the parameters for negotiating pay will be somewhere in line with Mr Boucher’s case,” Noonan said.

Boucher’s pay was €690,000 last year, but total compensation, including pension contributions and a car allowance, reached €958,000 in 2016.

Elsewhere the outlook for some disgruntled former mortgage holders with Irish Nationwide Building Society is rather bleaker. Those home buyers who were denied a tracker rate over the past decade will not receive any compensation from the liquidators of IBRC as part of the Central Bank’s industry-wide review, according to Noonan. Up to 100 people could be affected.

Separately the Central Bank plans to introduce a number of measures to make it easier for borrowers to switch their mortgages to another lender to reduce the cost of their loans.

This follows research that showed that just 4 per cent of borrowers had moved their home loans to a new lender, while 6 per cent had changed their product with their existing bank. The survey found 81 per cent had not considered moving their mortgage for one reason or another.

The regulator will propose lenders provide greater clarity to consumers on the switching process, including information on time frames and the potential costs of switching.

In another banking development, Credit Suisse, which set up a European hub in Dublin last year to service hedge-fund clients, said it may apply for a full banking licence in the Republic.

The institution is getting its ducks in a row ahead of upping sticks from London following Brexit. The bank, which has the equivalent of a €28.5 billion market capitalisation, is still weighing up a new home in Dublin or Frankfurt.

And Permanent TSB said it plans to seek High Court approval for a reorganisation of its share premium account to pave the way for it to resume dividend payments to investors, possibly from 2019 onwards.

Tourism is flying

For all the fears about Irish tourism with Brexit coming down the tracks, there were encouraging signs at Dublin Airport this week as new figures showed the number of people travelling through the facility has grown in the opening months of the year.

More than 5.8 million passengers flew in and out of Dublin Airport in the first quarter, an increase of 260,000 or 5 per cent on the same period last year. Separate figures showed total traffic in Irish airports during the first two months was 4.18 million.

In other aviation news, Norwegian Air, the Scandinavian group due to launch cheap flights from Ireland to the US, is eyeing expansion in South America, according to its chief executive, Bjørn Kjos, who said the group intends to base 10 Boeing 737s in Argentina by the end of this year.