Donohoe defends fiscal policies after ‘not credible’ criticism
Hospitality VAT increase was to combat reliance on corporation tax, says Minister
Minister Paschal Donohoe: there are ‘constant demands for increases in expenditure’. Photograph: Dara Mac Dónaill
Minister for Finance Paschal Donohoe has defended his fiscal policies and rejected criticism from the Irish Fiscal Advisory Council (Ifac) after it described the Government’s projections for the public finances as “not credible”.
The fiscal watchdog found the Government had breached post-financial crisis spending rules last year, with budget increases leaving the State running the risk “of repeating the mistakes of the past”.
The advisory council said the projections – laid out in the Stability Programme Update 2019 – show exchequer surpluses increasing each year based on expenditure forecasts that were not probable.
“They imply an implausible slowdown in spending growth based on technical assumptions, which do not reflect either likely future policies or the future cost of meeting existing commitments,” Ifac said.
Responding to the criticisms Mr Donohoe said there were always risks for a small, open economy.
Mr Donohoe told RTÉ radio’s News at One he will take the advice of the council on board but pointed out there were more people at work now than in the past decade, along with a more balanced economy.
“I have always acknowledged the potential risk of overreliance on corporation tax, that’s why I increased VAT for the hospitality sector, which will bring in €600 million more. That’s the kind of [TAX]base broadening that we need to do.
“Yes, I acknowledge the risk and there was too much reliance in the past on one sector – construction. Now there are 2.16million working in our economy not relevant to the construction sector.”
Careful management of the economy had resulted in 0.2 per cent surplus this year, he said. But there are “constant demands for increases in expenditure.”
The challenge now will be how he “pulls this together in the face of constant demands.”
He said while he values the contribution of people in the Defence Forces, there is a collective pay agreement and “despite what Fianna Fáil says about being careful they are going into the Dáil this evening looking for money.”
The Public Service Pay Commission would deal with the issue shortly, he added.
“Fianna Fáil decided to take advantage of that. We will stick to the collective agreement that treats all public servants equally.”
In relation to the Local Property Tax he said he wants to ensure that most people will pay the same and that those who will have to pay more will find it affordable.