18 Jul 2018, 11.00
Government plans to create a new Rainy Day Fund strong enough to absorb future economic shocks will require careful definition and design as well as official support from the European Union to be effective, the Budgetary Oversight Committee has cautioned as part of its Interim Pre-Budget Report published today.
The Committee has offered a wide-ranging assessment of corporation tax trends, VAT bands, and possible changes to rates in motor taxes and fuel duties. It also has raised a series of questions about the mooted Rainy Day Fund. The report reflects several months of fact-finding and deliberations with witnesses on the opportunities, tough choices and potential pitfalls facing Ireland in Budget 2019.
Among the key recommendations and observations in the Interim Pre-Budget Report:
- The Department of Finance should provide better explanations of how it uses population and age-profile forecasts to calculate spending needs and revenue projections.
- The Committee welcomes the Finance Minister’s pledge to increase the minimum range of the Department’s forecasts to a five-year horizon.
- The Government should commit to delivering an Equality Budget Statement as part of Budget 2019 focused on increasing professional opportunities and pay equity for women. This is the core recommendation of the Committee’s May 2018 Report on Gender Budgeting.
- The proposed Rainy Day Fund needs to be a sufficiently powerful, EU-endorsed reserve capable of supporting Ireland’s economy through a short-term shock or a cyclical downturn. It requires a disciplined structure to ensure that funds are reserved for well-defined purposes.
- While corporation tax collections have doubled since 2015, the government should seek to widen the CT base through increased support of indigenous companies, which in 2017 contributed only 4 percent of Ireland’s corporation tax.
- The Department of Finance should produce a paper to identify the implications of reforms to taxation on vehicles and fuel in line with market trends and environmental targets. The Committee says any reforms should reflect Ireland’s treaty commitments to reduce greenhouse gas emissions and its unusually high existing charges on vehicles.
Committee Chairman Colm Brophy TD says Ireland faces many opportunities in 2019, with its fiscal position strengthening and with it the potential to increase investment in improving people’s lives. But he says the projected €1.4 billion in fiscal space provides only limited flexibility at a time of rising uncertainty with Ireland’s major trading partners, the United Kingdom and the United States.
“Ireland’s budgeting approach needs an increased focus on detailed medium-term forecasting and credible plans that better anticipate how population growth will intensify demands on services and infrastructure,” Deputy Brophy said. “Allied to that must be a clearly defined vision for reducing debt and building reserves sufficient to cope with the next shock or downturn.”
Read the full report here.
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