Noonan seeks overhaul of ‘inconsistent’ fiscal rules

The Minister for Finance has called for an overhaul of the EU’s fiscal rules, claiming the system was overly complex and applied inconsistently in favour of larger countries.

In an address to the European Parliament's Economic and Monetary Affairs Committee, Michael Noonan said Ireland was seen as the "poster boy" of the rules because of the large budgetary consolidation implemented from 2008- 2015.

“And while there is some truth to this,” he said, “we are seeing evidence that this cannot be taken for granted.”

Mr Noonan said the rules as currently constituted were excessively complex and difficult to communicate to the public. He also noted a perception that they were not being applied “sensibly or consistently” and that larger states were afforded greater flexibility.

This had made the Irish Government’s strict adherence to the rules increasingly difficult to defend, he said.

Under the EU’s Stability and Growth Pact, countries are obliged to adhere to strict debt and deficit targets set by the European Commission.

Department of Financial officials are currently attempting to negotiate flexibility with Brussels amid the clamour for greater capital spending on projects to address infrastructural bottlenecks in housing, transport and water.

On the EU’s push for a more consolidated corporate tax base, seen here as a threat to the State’s coveted 12.5 per cent rate, Mr Noonan described the current EU proposals as “very complex” but said the Government would examine them in detail.

Brexit risks

In his speech, the Minister also spoke about the risks posed to the Irish economy from Brexit, noting his department had reduced its growth forecast for next year to 3.5 per cent.

“We will need to manage this carefully and, as well as introducing specific measures to assist particular sectors of the economy, we must also put in place the appropriate buffers and safety nets,” he said.

The best outcome for Ireland was for a Britain that remained closely linked to the EU and a scenario that avoided any moves towards a hard Border with Northern Ireland.

He said the Government was keen to preserve the common travel area and the common labour market between the Republic and the UK.

On the commission's €13 billion tax ruling against Apple, he said the Government fundamentally disagreed with the commission's analysis.

The decision left the Government no choice but to take an appeal to the European courts, he said. The Government’s appeal is due to be submitted today.

Mr Noonan also addressed the issue of Ireland's revised 26 per cent growth rate for last year, dubbed "leprechaun economics" by US economist Paul Krugman.

The Minister blamed the revision on the activities of a small number of multinationals. Specifically, he pinpointed contract manufacturing, whereby firms here hire third-parties to produce abroad on their behalf; the relocation of intellectual property-related assets to Ireland; and an increase in new aircraft imports.

“The substantial upward revision is largely related to the activities of a small number of large multinational firms,” he said, “and reflects a number of exceptional factors which have limited impact on actual activity in the Irish economy.”