Budget 2019: Donohoe pledges to reduce tax burden on ‘gradual’ basis

Minister says doing too much too quickly ran risk of overheating economy

Minister for Finance Paschal Donohoe has committed to lowering the tax burden for middle-income earners but on a “gradual” basis.

Minister for Finance Paschal Donohoe has committed to lowering the tax burden for middle-income earners but on a “gradual” basis.

 

Minister for Finance Paschal Donohoe has committed to lowering the tax burden for middle-income earners but on a “gradual” basis. He said doing too much too quickly would not be appropriate at this stage of the Government’s budgetary cycle and ran the risk of overheating the economy.

“Well managed economies tend to be characterised by durable and sustainable improvements in living standards rather than an all or nothing approach that has been a feature of our recent economic history,” he told a conference hosted by the Economic and Social Research Institute (ESRI) in Dublin.

While the gradual approach to income tax reform may aggravate some, Mr Donohoe said “doing a huge amount at once” risked repeating the mistakes of the past while doing nothing undermined the perceived fairness of the Irish tax code.

‘Gradualism’

“Gradualism” in terms of public expenditure and tax reform was the correct approach, he said.

Mr Donohoe said that while a “full and literal” appplication of the EU’s fiscal rules might imply a bigger budgetary package than the €3.4 billion already earmarked by the Government, such a level of expenditure would not sustainable.

In the Government’s recent Summer Economic Statement, Mr Donohoe said he was targeting an additional budgetary spend of €3.4 billion in October’s budget, of which €2.6 billion has already been pre-committed.

This leaves €800 million for allocation to various spending increases and tax cuts on budget day.

Mr Donohoe said the Irish economy faced a number of external risks from Brexit, changes to the international tax environment and the possibility of a global trade war.

“As such we need to build up the budgetary capacity of our economy for the future to enhance and strengthen our resilience,” he said. “That’s why we’re reducing the deficit and setting up a rainy day fund - to deepen our resilience,” he said.

The challenge for Government was how to use budgetary policy to facilitate the transition “from substantial economic growth rates that are synonymous with a rapid recovery to a more sustainable rate of growth over the medium term,” he said.