Officials monitoring Ireland’s payback of bailout loans have criticised the Government use of unexpected tax receipts, including a windfall corporate tax gain, to boost public spending.
Any extra cash the State raises should be used instead to cut national debt rather than to boost spending or cut taxes, according to European Union and European Central Bank (ECB) officials.
Staff from the European Commission and ECB spent several days this week surveying the State's finances to ensure it can continue to repay €67.5 billion lent by Brussels and the International Monetary Fund (IMF) in the 2010 bailout.
The officials warned in a statement that risks such as Brexit put a premium on prudent management of the State’s finances. They pointed out that while the Government deficit, the gap between what the State earned from taxes and what it owed, narrowed in 2016, the rate at which that shortfall declined had slowed down.
They blamed this slowdown on the Government’s policy of “exhausting all available fiscal space”, that is using any extra money it raised in 2015 and 2016 to fund tax cuts and increased spending.
Windfall
The Government used cash raised from a corporate tax windfall and other sources last year to fund €2 billion in increased spending in Budget 2017.
“In the future it would be prudent to use such funds to accelerate deficit and debt reduction, in particular as many indicators suggest that the economy is already operating close to its potential,” the officials’ statement warned.
They added that the State had to manage spending carefully to comply with rules governing how EU member states set out their budgets.
Brussels officials also hinted that the help-to-buy tax break for first-time home buyers had “exacerbated” recent increases in house prices, but acknowledged that the key issue was a lack of supply.
“Completions of new residential housing units increased in 2016 but the supply of homes remains well below estimated demand fundamentals,” they said.
“The Government has repeatedly and actively intervened in the residential property market but it will still take time to deliver an adequate supply of new homes.” They stressed that credit is not driving current prices increases.
Brussels acknowledged that the Republic had made substantial progress in tackling the fallout from the financial crisis, including cutting public and private debt and creating jobs.
“Growth of the domestic economy remains robust, driven by positive developments in the labour market, consumption and core investment,” their statement said.
The bankers and commission representatives pointed out that this growth faced a number of risks, including the uncertainty about the outcome of the UK’s exit talks with the EU and the possibility that international tax and trade policies could change in the future.
European Commission and ECB staff regularly survey the Republic to ensure it can repay its bailout debts. Last week’s was the seventh such review since the State exited the programme, which the commission, the ECB and the IMF oversaw.
