Moody’s says Budget 2016 keeps the deficit reduction on track

Agency says Government’s €1.5 billion in supplementary spending should be ‘feasible’

Ratings agency Moody’s today said the €1.5 billion in supplementary spending announced last week by the Government should be “feasible” given that corporation taxes will be 5.5 per cent higher than budgeted.

The agency also said Budget 2016 keeps the deficit reduction on track although it signalled a "loosening" in fiscal policy compared with recent years.

On the additional spending for the final quarter of this year, Moody’s said: “This spending increase is feasible without endangering the budgetary targets because tax revenues - in particular, corporate income taxes linked to the multinationals sector - will likely be €2.3 billion or 5.5 per cent higher than budgeted.”

Moody’s said the increased spending this year was relevant because from 2106 onwards, Ireland would be subjected to the preventive arm of the European Commission’s fiscal compact, which imposes tight limits on spending rises.

The higher spending base in 2015 carries over in a correspondingly higher level of spending next year.

Moody’s said the spending growth remains “far more moderate” than in the pre-crisis years of growth in the economy and tax revenues.

“Even when including the 2015 additional spending, total voted spending -excluding debt interest payments - would increase by just 2 per cent between 2014 and 2016,” Moody’s said, adding that it rose by 12 per cent between 2000 and 2007.

On Budget 2016, Moody’s noted said the Government has targeted a deficit of 1.2 per cent of GDP, lower than the 1.7per cent figures published in its stability programme in April.

“Given the strong economic growth - we expect real GDP growth of around 4 per cent in 2016 - the new target seems achievable,” it said.

Moody’s said the deficit this year would likely be in line with its expectations of 2.1 per cent of GDP.

“Ireland’s public finance are now improving at a very fast pace, which is credit positive,” the agency said.

Moody's stands apart from rivals Standard & Poor's and Fitch by not having an A-rating on Irish debt.

Ciarán Hancock

Ciarán Hancock

Ciarán Hancock is Business Editor of The Irish Times