THE STATE’S FISCAL watchdog has warned that the momentum of Ireland’s economic growth is slowing down.
In its November report, the Irish Fiscal Advisory Council also said that any increases in spending by the government next year or any increases in public sector pay would have to be offset by raising taxes or spending less money in other areas.
The report states that although the economy continues to grow in 2016, “there is some evidence of a loss of momentum” as the year has progressed.
The council warned that Department of Finance projections for GDP growth of 3.5% next year and an average of around 3% for the years 2018 to 2021 were “far from assured” with the economy vulnerable to “numerous domestic and international risks”.
The report also found that half the ‘fiscal space’ – the amount of money the government has to play around with for tax cuts and increases in spending – for 2018 has already been used up in October’s budget.
It was critical of government overspending and a failure to comply with fiscal rules. It warned that any potential slowdown in economic growth in a time of international instability left the country more vulnerable to shocks like Brexit.
The council also warned that volatile corporate taxes, which have recently been boosted by multinationals booking more profits in Ireland, have now been linked to “difficult-to-reverse spending increases”.
“(This) goes against the spirit of the new budgetary framework and is especially risky when the source of the additional revenue is corporation tax,” the report said.
In a statement, Finance Minister Michael Noonan welcomed the report, saying that it endorsed his department’s macroeconomic forecasts for next year.
“I note the report highlights Brexit as a fiscal risk,” said Noonan, adding that the government had brought in a lower debt target for the mid-to-late 2020s to provide a safeguard.
“This will help to provide additional fiscal ‘shock absorption’ capacity to the public finances,” he said.
Written by Cormac Fitzgerald and posted on TheJournal.ie