The Minister for Finance has said that the Government will borrow an additional €1 billion to cover shortfalls in tax revenues. Mr McCreevy said yesterday that borrowing would be in the region of €9 billion over the 2003-2005 period, compared to a target of €8 billion announced on Budget day.
His comments, made in a radio interview, come after exchequer returns released at the start of the month indicate an emerging shortfall in tax revenues of €500 million. Department of Finance sources said yesterday that the Minister's statement could be seen as a commitment not to raise income taxes to make up for the shortfall.
The opposition was quick to characterise the decision as a further U-turn on borrowing by the the coalition.
"This latest decision by Minister McCreevy and the Government to borrow for productive purposes is a clear indication of economic incompetence in managing our country through difficult financial times," said Mr Phil Hogan, the Fine Gael spokesman for enterprise, trade and employment.
In a separate interview published in today's Financial Times, Mr McCreevy pledged to oppose any attempts to remove national vetoes on tax when Ireland assumes the EU presidency next January.
Mr McCreevy said the veto "goes to the heart of a representative democracy". He added: "Our position would be quite clear. We will be against this."
The draft European constitution, which Mr Giscard d'Estaing handed over to the Italian government last week, says that when all member states agree that an EU proposal relates to "administrative co-operation or to combating tax fraud", they lose the right to individual vetoes.
The European Commission fears that aggressive tax policies can distort investment within the EU. Ireland can use its veto to block the move in the forthcoming intergovernmental conference on the draft constitution, scheduled to begin in October.
But it would like to resolve the issue before it takes the chair in January. The negotiations are set to end in February or March, after which the treaty would have to be ratified by each member-state.
Mr McCreevy did not comment on reform of the euro area's Stability and Growth Pact (SGP), which is also likely to figure during the Irish presidency. The Economic and Social Research Institute (ESRI), in its most recent review, said the best prospects for introducing needed reform of the pact probably lay with the upcoming Irish presidency of the EU.
The ESRI called for changes to the SGP so as to allow borrowing for infrastructural investment.
The institute believes that, while the Irish presidency next year might not be the optimal time for changing the pact, delay could be even more damaging.
The pact lays down rules for the level of borrowing it allows. States that are party to the pact are restricted to borrowing less than 3 per cent of Gross Domestic Product in a particular year. An idea suggested in the review is one whereby states would be allowed borrow to fund net investment (net of depreciation) in public infrastructure so that in the very long run the public debt would be equal to the stock of public infrastructure.
Leaving the 3 per cent rule in place, and combining it with a fiscal stance based on a "cyclically adjusted deficit", would create a modified rule that would deal well with the special problems of countries such as Ireland that have "a large and pressing need to invest in infrastructure", according to the ESRI.
It believes changing the SGP will not be easy but that "probably the best prospect lies for the Irish presidency".
"With Ireland in broad compliance with the SGP, proposals for reform from Ireland would be seen to be less self-serving that proposals from countries that are currently having difficulties with the pact," according to the institute.
Reform would be in the best interests of Ireland, the review states.
It also argues that debate about the pact in the Euro area is distracting attention from the real issues of fiscal policy in individual countries.- (Additional reporting by Financial Times service)
