The Government will have more room for manoeuvre than previously estimated in the Budget, new figures from the Department of Finance confirm. The figures show that the official estimate of what the State needs to borrow next year to bridge the gap between spending and revenue has fallen sharply. Before the budget tax and spending measures, the forecast now is for close to a balanced budget next year.
The latest figures, contained in the pre-budget White Paper published on Saturday, show that before next Tuesday’s budget measures, the Department of Finance estimates that borrowing for 2017 will be €242 million – or just 0.1 per cent of GDP – down from the previous estimate of €865 million. This is using the general government borrowing measure, the basis for EU fiscal rules.
This does not translate directly into extra room for tax cuts and spending increases on budget day, as the Government still has to comply with spending limits set under EU rules and enshrined in Irish legislation. However, what it does mean is that the Government will have more leeway to use any spare cash available on budget day, such as funds which become available from savings on departmental spending. It will now be able to do this while still maintaining a borrowing figure within the 2017 target.
Extra allocations
This is expected to allow the Minister for Finance Michael Noonan and the Minister for Public Spending Paschal Donohoe to allocate at least an extra €1.2 billion net to tax cuts and spending increases, up from the previously estimated figure of €1 billion.
The White Paper on Receipts and Expenditure contains the Department of Finance projections for tax and spending this year and next, in advance of the budget. The figures will be updated to take account of budget measures on tax and spending, to be announced on Tuesday.
The pre-budget White Paper also shows that there will be a bit more available to allocate to capital spending next year. Spending in this year was higher than expected, due to extra money allocated to fix flood damage. This raises the base for next year, with net capital spending of €5.154 billion now expected, nearly €200 million ahead of previous estimates.
Growth projections
The Department’s forecasts are based on GDP growth projections of 4.2 per cent this year, falling to 3.5 per cent next year. The 2017 forecast has been cut by 0.5 of a percentage point to account for the impact of Brexit.
The White Paper estimates that the 2016 borrowing target of 0.9 per cent of GDP will be met. The estimate for tax revenue next year is increased to €50.632 billion, up from a previous estimate made during the summer of €49.2 billion.
The White Paper shows that the Department expects the Central Bank to remain a significant contributor to the State coffers, with profits of more than €1.6 billion, down from €1.8 billion this year. The Department also pencils in an increased contribution to the EU budget, up to €2.4 billion next year, from €2.145 billion this year, based in large part on our revised national income figures. However, this is more than offset by a drop in the estimated cost of servicing the national debt, down to €6.442 billion next year from €6.883 billion this year, benefiting from the raising of new borrowings at a cheap rate by the NTMA.
