Donohoe hits back at criticism of Government’s budgetary stance

Minister for Finance Paschal Donohoe has hit back at criticism of the Government's budgetary policy, saying he was not going to apologise for using additional corporation tax revenue to fund vital infrastructural investment.

The Irish Fiscal Advisory Council (Ifac) last month rebuked the Government for "repeatedly" breaching its own budgetary targets and for using the current windfall in corporation tax to paper over cracks in its spending plans.

Addressing the Select Committee on Budgetary Oversight, Mr Donohoe said Budget 2019, which allows for an additional €4.5 billion Government spend, was prepared “on a careful and contained basis” that took account of demographic factors in health, social protection and education.

Improvements

In response to the council’s claim that improvements in the Government’s underlying budgetary position had effectively stalled since 2015, he insisted that expenditure growth since 2015 had been modest compared to the previous period despite the additional demands.

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While acknowledging the potential once-off nature of business tax receipts, which hit a record €10.4 billion last year, Mr Donohoe said using the current windfall to fund capital expenditure could increase the economy’s “resilience” to future shocks.

He also claimed that some of the increase in receipts related to increased corporate profitability. The Government plans to increase capital spending by €1.5 billion in 2019 to €7.3 billion, with much of the additional spend going towards various social housing and transport-related projects.

“The Government is not going to apologise for using this period of strength in our corporation tax receipts to accelerate infrastructural investment in the areas where we need it most,” he told the committee.

Mr Donohoe acknowledged, however, that some of the council’s criticism in relation budgetary overruns in health, which amounted €625 million last year, was justified.

He said he was “acutely aware that the last number of years have seen overspends in this area which impact on the overall level of resources available for public services”.

Ongoing talks

The Minister said there was ongoing talks between his department and the Department of Health on how its situation can be more effectively managed.

Mr Donohoe refuted the council’s claim that Budget 2019 was based on a “relatively benign” Brexit outcome, suggesting the Government had explored other Brexit scenarios.

He said the possibility of a no-deal Brexit had influenced several decisions relating to the public finances in terms of the Government move towards “balancing the books” and the building up of fiscal buffers for a future downturn.

He also said his department will carry out a further assessment of the possible impact on Ireland of a disorderly Brexit in light of the scale of British prime minister Theresa May's defeat in the House of Commons this week.

Mr Donohoe said the probability of a disorderly Brexit was rising and quantitative easing was ending, potentially driving up the State’s borrowing costs.

“Our policy approach should be to target larger surpluses to build up our fiscal buffers for when times become less favourable,” he said.

The Government ran a budget surplus last year for the first time in more than a decade thanks in the main to record business tax receipts.