The incoming Fine Gael-led minority administration will increase public spending by €3.18 billion over existing policies in the years to 2021, the draft government programme suggests.
New spending will be reserved to meet the cost of an ageing and growing population, with targeted improvement centred on the health service, education, disability, child development and care services.
Revenue
On the revenue side, the new government will introduce a new tax on sugary drinks and increase tobacco taxes. It will also carve out additional scope to cut personal tax rates by not indexing personal tax credits and bands.
The new government said it will direct increased spending towards improvement in welfare spending for elderly, disabled and sick people, as well as for carer. A further commitment was made in the draft programme to deliver “sustainable” increases in public service pay and pensions.
Public service pension cuts introduced in the wake of the crash will be reversed by 2021 and low pensions will be prioritised first, the document said.
“New investment in public services will allow the new government to recruit additional front-line service professional such as doctors, nurses, gardaí, teachers, and social workers within a reformed and better-managed public service,” said the document.
“We will also keep the tax and revenue base broad, while reducing the rate of tax on work and some other activities to achieve specific social and economic objectives, such as full employment and more housing and urban and rural regeneration.”
Deficit
Although the 159-page document says the new government plans to spend at least an additional €6.75 billion by 2021 compared with 2016, commitments already made will cost an additional €3.58 billion per year within five years.
However, the document commits the new administration to eliminate the remaining government deficit by 2018 and keep the public finances broadly in balance in following years.
While latest official forecast assume of headline deficit in 2016 of 1.1 per cent of gross domestic product, the incoming government assumes that a continuation economic growth in the next two years will be sufficient to wipe out the remaining deficit.
The document marks a change of fiscal stance by the new administration. Although the outgoing Fine Gael/Labour coalition cast Budget 2016 on the basis of a 50:50 split between between new spending and tax cuts, the new government has promised “at least a 2:1 split” between spending and tax reductions.
The programme insists the new government will not rely on “unpredictable and fragile sources of revenue” to finance permanent public spending increases.
USC
Cuts to personal tax rates, including “the continued phasing out” of the USC, will be funded largely through extra revenues from not indexing personal tax credits and by the removal of the PAYE tax credit for high earners.
The document said other unspecified measures will be adopted to ensure the tax system remains fair and progressive, together with unspecified measures to improve tax compliance.
On public pay, the document said the new government will implement the Lansdowne Road pact in line with the settled schedules. It also pledged to recognise that “recruitment issues” in the public service must be addressed under the deal.
“We will establish a Public Service Pay Commission to examine pay levels across the public services, including entry levels of pay,” it said.
“We will support the gradual, negotiating repeal of the the Financial Emergency Measures in the Public Interest Acts, having due regard to the priority to improve public services and in recognition of the essential role played by public servants.”
