Politics

Fine Gael shifts to favouring public spending over tax cuts

Party says it will commit to using resources for services and infrastructure if re-elected

Minister for Finance Michael Noonan told the Fine Gael ardfheis the party’s policy of abolishing the Universal Social Charge (USC) will cost less than 30 per cent of all resources available to the next government, the so-called “fiscal space”. Photograph: Dara Mac Dónaill/The Irish Times
Minister for Finance Michael Noonan told the Fine Gael ardfheis the party’s policy of abolishing the Universal Social Charge (USC) will cost less than 30 per cent of all resources available to the next government, the so-called “fiscal space”. Photograph: Dara Mac Dónaill/The Irish Times
Fiach Kelly
Mon Jan 25 2016 - 00:15

Fine Gael will commit to using a "sizeable majority" of all resources available to the next government to fund services and infrastructure over cutting taxes.

The move marks a shift from previous Government policy which equally prioritised tax cuts and public spending.

The initial austerity budgets agreed by Fine Gael and Labour saw adjustments roughly along the lines of 60:40 in favour of spending cuts, with the last budget split equally between spending increases and tax cuts.

Minister for Finance Michael Noonan told the Fine Gael ardfheis the party's policy of abolishing the Universal Social Charge (USC) will cost less than 30 per cent of all resources available to the next government, the so-called "fiscal space".

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Clawback mechanism

Mr Noonan said the USC abolition would cost €4 billion in gross terms, but this would be offset by a clawback mechanism on salaries over €100,000.

Taoiseach Enda Kenny on Sunday defended the USC policy as Fianna Fáil leader Micheál Martin challenged him to debate the future of public services.

Fine Gael has faced Opposition criticism that its taxation policies will damage public services.

It is also committed to equalising the tax system for the self-employed and increasing the inheritance tax threshold from €280,000 to €500,000.

Mr Noonan estimated the next government will have €12 billion to spend once the deficit is reduced by the end of next year.

Other parties have calculated that the resources available to the next government will be about €10 billion.

Labour has already said it wants three-quarters of available resources to be directed towards public spending, and a quarter to tax cuts.

‘Fiscal space’

While Mr Noonan suggested Fine Gael could split the “fiscal space” on a 70-30 basis in favour of spending increases, party sources said the exact ratio had yet to be finalised.

“It’ll be a majority but it’s still being finalised,” said one source. “It will be set out in detail in the long-term economic plan.

“A sizeable majority will go towards sensible investments in infrastructure and services. But none of this space will be available without a clear plan to create jobs and keep the recovery going.

“It’s not credible that other parties are now vying to spend the fruits of a recovery created by the very policies they’ve opposed for the last few years. And they still have no plans to keep the recovery going.”

Over the weekend, Mr Kenny also repeatedly refused to rule out seeking the support of Tipperary Independent TD Michael Lowry if the Government falls short of a majority in the next Dáil.

Mr Lowry said he is “bemused” by such speculation and is not “going to be presumptuous” about the outcome of the election.

“If I do get elected, I will do whatever is best for the people who place their trust in me. We’ll look and see how the numbers fall and then make a decision,” said Mr Lowry.

However, Labour figures expressed concern about the possibility of Mr Lowry supporting a government they were part of, given his record with the Moriarty tribunal and the Revenue Commissioners, claiming the Labour grassroots “would never sanction such a deal”.