Irish Budget 2015: The Government implemented €1bn of tax cuts and spending increases in Tuesday's Budget -- we present economic analyses here.
Conall Mac Coille, chief economist at Davy, comments:
"Budget 2015 was in line with expectations. Together, the tax (€420m) and spending (€630m) measures are worth €1bn. However, since Friday an additional €320m of non-tax revenues have been found; as a result, the impact on the general government deficit is just €585m, or 0.3% of GDP. This small loosening will leave the overall deficit at 2.7% of GDP in 2015. Irish government debt is expected to remain relatively high at 110.5% of GDP at end-2014.
The bulk of the good news on economic performance and tax revenue growth has been used to reduce the €2bn adjustment originally planned for 2015 into a small Budget giveaway. Recommendations for a more cautious approach from the European Commission, IMF and Irish Fiscal Advisory Council have been ignored. Clearly, the electoral cycle and traditional political pressures for pro-cyclical fiscal policy have re-asserted themselves. However, the Budget numbers are probably still conservative to ensure targets are met and do not pencil in any benefit from future sales of state assets in the banking sector.
On balance, household incomes will be left broadly unchanged. They have been pushed up by €458m in income tax cuts but offset by €300m in new water charges in 2015. Unfortunately, the 52% marginal tax rate remains in place, hurting the economy’s ability to attract highly skilled workers. A 1 percentage point cut in the top rate of income tax to 40% and paid at a higher €33,800 has been offset by the new 8% Universal Social Charge on incomes over €70,000. This is a little disappointing given prior commitments. However, Minister for Finance Michael Noonan did re-commit to reduce the marginal rate in the future. More encouragingly, the 0.6% pension levy will end in 2014, and the government is committed to eliminate the remaining 0.15% in 2015.
Concerns that spending discipline is being eroded, particularly in the Department of Health, will now grow. Effectively, the €500m budget over-run in 2014 is being locked into next year’s Budget estimates. There was also a €196m increase in Social Protection spending. Worryingly, Minister for Public Expenditure and Reform Brendan Howlin also appeared to argue that savings from falling unemployment should largely be recycled into Social Protection spending – currently inflated by the 11.1% unemployment rate. For example, this year will see a €5 per month increase in already bloated child benefit payments, granted irrespective of household income."
Dermot O'Leary, chief economist at Goodbody, comments:
"Budget 2015 marks the end of austerity, while there is some slippage from the prudent policies of recent years. Fiscal measures will support economic growth momentum in the short-term and we upgrade GDP forecasts yet again. See attached note.
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