There are always so many figures swirling around pre-budget that it is hard to work out what they all mean.
The pre-budget White Paper, published on Saturday, has a short shelf-life as it will already be out of date on budget day when new tax and spending measures will be announced. But it does tell us the department’s view of the pre-budget starting position.
And here we should note that if there were no tax cuts or spending hikes the department estimates that the budget next year would be almost in balance. We have come a long way from the massive borrowing requirements of the crisis years.
With Brexit threats to growth looming, as underlined by the recent fall in sterling. there is an argument that things should be left this way. In volatile times it is good to have some spare cash. But political promises ensure we will see tax cuts and spending hikes. How much will they amount to? Certainly more than the previously advertised €1 billion.
Just how much more we won’t know for sure until Tuesday. This is because, in time-honoured fashion, it appears that some cash has been found down the back of departmental sofas – cash allocated which has not been spent and which can now be deployed next year.
Capital projects
We don’t know exactly how much. But it appears that this may increase the “fiscal space” – the room for tax cuts and spending increases – from the €1 billion previously estimated to €1.2 billion or a bit more.
There is also a little more leeway to spend money on capital projects because of an increase in spending in this area in 2016, which raises the baseline for the 2017 figure.
Because the pre-budget borrowing forecast for 2017 has been cut – from 0.4 per cent of GDP previously to 0.1 per cent now – Ministers Michael Noonan and Paschal Donohoe will be able to use the extra cash savings and the extra scope for capital spending without fear of breaching borrowing limits. This downward borrowing trend was helped by the controversial 26 per cent upward revision of our GDP figures. Leprechaun economies has its advantages.
These things won't transform Budget 2017, but by allowing for measures such as a cut in the standard 5.5 per cent USC rate they may make it all a bit politically easier.
There are a couple of points to note about the pre-budget figures. Tax revenues are forecast to rise over 5 per cent next yer to €50.6 billion. This looks consistent with the 3.5 per cent GDP growth forecast, allowing for likely wage rises, spending and company profits, but any Brexit-inspired hit to growth could be a threat. The figures only pencil in a very small rise in corporation tax, but our reliance on a small number of big companies here remains a factor.
Low interest rates
The second key point is the big benefit we are getting from low interest rates. The
National Treasury Management Agency
(NTMA) continues to raise new borrowings at rock bottom rates, and the cost of debt-servicing, having come in well below target this year at just under €6.9 billion, is due to fall to just over €6.4 billion next year. The budget sums would be a lot tighter if it weren’t for this. Fortunately, it more than offset a nasty rise of €255 million in our expected contribution to the EU budget next year, estimated to be €2.4 billion.
We now await budget day, when the White Paper forecasts will be torn up. Their significance is that they give the Ministers the final green light to go ahead with their tax cuts and spending hikes.
However departmental officials have already warned of downside risks to their growth estimates, and they will be warning the two Ministers not to push their luck too far.
