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Dublin: 19 °C Thursday 31 July, 2014

Government budget advisors: No room for tax cuts until after 2016

The Irish Fiscal Advisory Council is before the Oireachtas Finance Committee today.

Council chairman Tony McHale speaking to TDs and Senators today
Council chairman Tony McHale speaking to TDs and Senators today
Image: Screengrab via Oireachtas TV

THE BODY WHICH independently assesses the government’s budgetary objectives has said that it does not see any room for tax cuts in the next two years.

Speaking before the Oireachtas Finance Committee today, the Irish Fiscal Advisory Council’s chairman, Professor John McHale, said it was the view of the council that there will not be any scope for tax cuts in the near future.

He also warned that if the economy does not grow at the rate expected next year – GDP growth of 2 per cent – then the planned budget adjustment of €2 billion may need to be harsher.

The Tánaiste last week signalled that there may be scope for relieving taxes on some middle-income earners in the lifetime of this government.

But McHale said today: “We really don’t see scope in the next year or two, but if both projections pan out as currently anticipated there could well be scope after 2016.”

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He said there would only be “limited room” post 2016 and said that this would be less likely if there was high inflation.

Despite this McHale said “we should be through the worst of it by 2015″.

The Council was before the committee to discuss its recent report criticising the government’s decision to exit the bailout programme on Monday week without a precautionary credit facility.

In that report the council said that the chances of Ireland not reaching the deficit to GDP ratio of 3 per cent by 2015 had increased from a one-in-three chance to a one-in-two chance as a result of exiting the bailout without a backstop.

Council member Sebastian Barnes (below) told the committee that the state of the public finances could be hit next year by problems in the health budget.

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“We’re trying to present an objective analysis and things are getting better,” he said, but he added that “as a result of the decision the risks [of Ireland not meeting the target] have increased now.”

He continued: “We’re not saying it’s a reckless policy, but we’re just saying, in our view, that the risks have increased considerably.”

Former deputy director of the International Monetary Fund, Donal Donovan, told the committee that the €20 billion in funding built-up by the NTMA is an “important weapon in an arsenal” but said that relying only on that “might not necessarily be the most prudent approach”.

Using a car insurance analogy, he told the committee that just becuase you don’t have a car crash for a year does not mean “it was a bad idea to have taken out insurance” for that year.

Read: Decision on credit line will make it ‘more difficult’ to access future supports

Charts: Here’s how the government’s liabilities have increased to €208bn in five years

Analysis: 5 reasons why the government decided to exit the bailout and go it alone

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