Department warns of external economic threats as talks go on

Ministers tell FG backbenchers deal with FF only prospect of saving Irish Water

Leo Varadkar, Frances Fitzgerald, Pascal Donohoe and Simon Coveney leaving Trinity College Dublin: The emerging water deal will see a commission of experts established to examine issues such as alternative charging systems. Photograph: Nick Bradshaw

Leo Varadkar, Frances Fitzgerald, Pascal Donohoe and Simon Coveney leaving Trinity College Dublin: The emerging water deal will see a commission of experts established to examine issues such as alternative charging systems. Photograph: Nick Bradshaw

 

The next government faces a greater level of global economic uncertainty than at any time since the height of the financial crisis, the Department of Finance has warned.

Amid divisions between Fine Gael and Fianna Fáil over Irish Water, the department has called for prudent fiscal management to offset any threats to the recovery from the numerous sources of international uncertainty.

The warning, in a submission to be sent to the European Commission under EU rules, came as the department upgraded its growth forecast for 2016 and said the economy would continue to expand rapidly in 2017. The Stability Programme Update document forecasts 4.9 per cent growth in gross domestic product this year, up 0.5 percentage points on its last projection, and it believes growth of 3.9 per cent is in prospect for 2017.

At the same time, the department said income tax and VAT collections in the first three months of the year were “somewhat disappointing”.

Edging closer

Last night, Fine Gael and Fianna Fáil appeared to be edging closer to a deal on water charges which would pave the way for a Fine Gael-led minority government.

Talks between Fianna Fáil and Fine Gael broke up at 10pm with final agreement not expected before Dáil statements on the water issue today. Sources last night suggested the water deal will centre on the suspension of charges for a period.

The emerging deal will see a commission of experts established to examine issues such as alternative charging systems. Irish Water, as an entity, will not be referred to the commission. The work of the commission could take a year, it is thought.

The outcome of the commission would then be referred to an Oireachtas committee. The committee’s findings would be voted on by the Dáil, as had been proposed by Fianna Fáil, meaning the future of charges will have to decided on the floor of the House.

While initially hostile to a compromise that involved a lengthy suspension of charges, Fine Gael backbenchers yesterday softened their positions as many realised a failure to reach a deal would cause an election.

Acting Taoiseach Enda Kenny and senior Fine Gael ministers earlier informed backbenchers the only prospect of saving Irish Water is to reach a compromise with Fianna Fáil on the charging regime.

Mr Kenny told the outgoing Fine Gael-Labour Cabinet that their meeting yesterday was their last, and thanked the Ministers for their work.

While Fianna Fáil leader Micheál Martin told the Dáil he is not afraid to go to the country over water, senior figures in his party last night said a deal will be done within 48 hours.

Downside risks

In the stability document, the department said the “principal downside risks in the short term” relate to trading partner growth and Britain’s looming referendum on EU membership.

The report, endorsed yesterday by the Cabinet, is to be debated today in the Dáil before its submission to the European Commission later this week.

While the department also cited spending pressures, it expected such trends could be accommodated within European fiscal rules.

The projection of continued growth in Ireland remains the “central scenario”.

However, the department warned that financial market turmoil at the start of the year flowed from concern that weakness in China and emerging markets could push the global economy towards recession.