Budget 2015 warnings keep coming but is anyone listening?

Growning number of experts say Coalition should deliver harsh budget

Will he or won’t he? Michael Noonan faces calls to introduce a prudent budget. Photograph: Eric Luke / The Irish Times

Will he or won’t he? Michael Noonan faces calls to introduce a prudent budget. Photograph: Eric Luke / The Irish Times

 

MARY MINIHAN Political Staff

Government politicians appear to be in conflict with a growing number of organisations with economic expertise over the shape of the upcoming budget.

Minister for Finance Michael Noonan last week said there would be no need for a new round of tax increases and spending cutbacks next year, but the European Commission has become the latest body to urge the Coalition to again proceed with a another tough budget in October.

Below is a list of some of the groups and individuals and what they are advocating:

European Commission: It put renewed pressure on the Government on September 30th to implement €2 billion in cuts as it fears that the strong exchequer figures in the second quarter may not be sustainable for the remainder of the year . In June, the Government was warned by the commission that it risked creating false expectations among voters by talking about tax cuts and spending increases before the next election. It called on Government to implement €2 billion in budget cuts, warning that there was “no room to manoeuvre” on the deficit.

Central Bank: In April, the Coalition was warned the budget for 2015 must be geared towards sustaining the favourable outlook and ensuring the money markets believe Ireland is recovering. According to the Central Bank’s outlook quarterly: “To ensure that this confidence remains, it will be more important than ever that the Government prepare budgetary plans for 2015 that will convince observers that Ireland remains on track for fiscal consolidation.”

IMF: In June, the IMF’s departing representative in Ireland cautioned the Government against reneging on its planned €2 billion budget adjustment because of the uncertainty surrounding economic growth. Peter Breuer said Ireland ran a greater risk of missing its targets by focusing on getting the budget deficit below 3 per cent of gross domestic product (GDP) in 2015.

ESRI: The Economic and Social Research Institute warned in July that tax cuts in the Budget would be premature. Professor John FitzGerald said the Government must continue to cut expenditure and increase taxes to the tune of €2 billion.

OECD: In May, the Paris-based think-tank said Ireland would narrowly miss its budget deficit target for 2015 even with a planned €2 billion adjustment in the next budget. The Organisation for Economic Co-operation and Development predicted the Government deficit will fall to 4.7 per cent this year, and to 3.1 per cent next year – just outside the troika- agreed target of below 3 per cent.

IFAC: The Irish Fiscal Advisory Council on September 22nd urged the Government to proceed with a another tough budget in October, saying considerable work is still required to repair the public finances. The council says in a pre-budget report that the Government should still go ahead with its original plan to retrench by a further €2 billion .

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NERI: In June the Nevin Economic Research Institute said the planned €2 billion adjustment would damage the economy. It said the Government could still meet its deficit target while introducing a softer than anticipated budget with an €800 million adjustment.

TASC: The think-tank for Action on Social Change warned that most people would not benefit from any change to the higher tax rate. Director Dr Nat O’Connor said lowering the VAT rate by one per cent would benefit far more people than income tax cuts. Increasing tax credits rather than changing the 41 per cent rate or the bands would benefit nearly all workers equally in real terms, although some part-time workers would still not benefit, he argued.

IBEC: The employers’ body is recommending no additional fiscal adjustment in next month’s budget and said the latest CSO figures gave the Government’s scope for tax cuts.

Minister for Agriculture and Defence Simon Coveney: In July, he said he expected middle- and low-income families would welcome tax changes in budget 2015 and 2016. “We can only do a limited amount in this budget because the numbers are very tight. But certainly I hope we will be able to start the process of improving people’s take-home pay by using the tax system to do that,” he said.

Minister of State for employment Ged Nash said in August the average worker should be able to expect higher wages as the economy recovers. He said raising wages would be a better way to help lower paid workers than cutting taxes.

Minister of State at the Department of Finance Simon Harris: In August, he said income tax taken from pay packets should be reduced in the upcoming Budget. Many Government ministers were conscious that people paid 41 per cent income tax once they earned €32,800 which was from a “low point”, he said.